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22 March 2018 OECD releases Denmark peer review report on implementation of Action 14 minimum standard On 12 March 2018, the Organisation for Economic Co-operation and Development (OECD) released the third batch of peer review reports relating to the implementation of the Base Erosion and Profit Shifting (BEPS) minimum standard under Action 14 on improving tax dispute resolution mechanisms.1 Denmark was among the assessed jurisdictions in the third batch. Denmark requested that the OECD also provide feedback concerning their adoption of the Action 14 best practices, and therefore, in addition to the peer review report, the OECD has released an accompanying best practices report. Overall the report concludes that Denmark meets most of the elements of the Action 14 minimum standard. In the next stage of the peer review process, Denmark's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14 on Making Dispute Resolution Mechanisms More Effective.2 The Terms of Reference translated the Action 14 minimum standard into 21 elements and the best practices into 12 items. The Assessment Methodology provided procedures for undertaking a peer review and monitoring in two stages. In Stage 1, a review is conducted of how a BEPS member implements the minimum standard based on its legal framework for Mutual Agreement Procedure (MAP) and how it applies the framework in practice. In Stage 2, a review is conducted of the measures the BEPS member takes to address any shortcomings identified in Stage 1 of the peer review. Both of these stages are desk-based and are coordinated by the Secretariat of the Forum on Tax Administration's (FTA) MAP Forum. In summary, Stage 1 consist of three steps or phases: Input is provided through questionnaires completed by the assessed jurisdiction, peers (i.e., other members of the FTA MAP Forum) and taxpayers. Once the input has been gathered, the Secretariat prepares a draft Stage 1 peer review report of the assessed jurisdiction and sends it to the assessed jurisdiction for its written comments on the draft report. When a peer review report is finalized, it is sent for approval of the FTA MAP Forum and later to the OECD Committee on Fiscal Affairs' to adopt the report for publication. The report includes 21 recommendations relating to the minimum standard. In general, the performance of Denmark with regard to MAP has proven to be satisfactory in their respective reports. Overall, Denmark meets most of the elements of the Action 14 minimum standard. Denmark reported that it has recently signed the Multilateral Instrument (MLI) with a view to inter alia update the tax treaties slightly differing from Article 25(3), first sentence, OECD Model Tax Convention 2015 (requiring their competent authority to endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the tax treaty). Where this requirement is neither addressed under the MLI nor a tax treaty, Denmark intends to update them via bilateral negotiations when it becomes necessary. Denmark otherwise meets the Action 14 minimum standard concerning the prevention of disputes. It has in place a bilateral Advance Pricing Agreement (APA) program. This APA program also enables taxpayers to request rollbacks of bilateral APAs and such rollbacks are granted in practice. Denmark also meets most of the requirements regarding the availability and access to MAP under the Action 14 minimum standard. It approves access to MAP in all eligible cases. However, it does not have in place a documented bilateral consultation or notification for those situations in which its competent authority considers the objection raised by taxpayers in a MAP as not justified. Denmark has clear and comprehensive guidance on the availability of MAP and how it applies this procedure in practice, both under tax treaties and the European Union Arbitration Convention. Denmark meets the other requirements under the Action 14 minimum standard in relation to the resolution of MAP cases. Denmark's competent authority operates fully independently from the audit function of the tax authorities and adopts a pragmatic approach to resolve MAP cases in an effective and efficient manner. Denmark is among the jurisdictions which provided information and requested feedback on how it has adopted the 12 best practices contained in the Action 14 final report. Below are some relevant observations:
Denmark is already working to address deficiencies identified in its peer review and will now move on to Stage 2 of the process, where Denmark's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. Under the peer review program methodology, Denmark shall submit an updated report to the Forum on Tax Administration's MAP Forum within one year of the OECD Committee on Fiscal Affairs' adoption of the Stage 1 peer review report. In a post-BEPS world, where multinational enterprises (MNEs) face tremendous pressures and scrutiny from tax authorities, the release of Denmark's peer review report represents the continued recognition and importance of the need to achieve tax certainty for cross-border transactions for MNEs. While increased scrutiny is expected to significantly increase the risk of double taxation, the fact that tax authorities may be subject to review by their peers should be seen by MNEs as a positive step to best ensure access to an effective and timely mutual agreement process. Furthermore, the peer review for Denmark provides insights to taxpayers on the availability and efficacy of MAP. With additional countries continuing to be reviewed, the OECD has made it known that taxpayer input continues to be welcomed on an ongoing basis. With stakeholder feedback in mind, businesses are encouraged to share their views with the OECD on the peer review for Denmark and any other jurisdictions, and to perhaps comment on whether the next iteration of the OECD's assessment of tax administration's MAP performance warrants greater feedback from taxpayers as the primary source. Feedback from the international tax community is the logical next step after peer review, which may help to further validate the current favorable result. Multinationals that are confronted with taxation not in accordance with the treaty, including double taxation, should consider making use of the efficient MAP process in Demark. 1. See EY Global Tax Alert, OECD releases third batch of peer review reports on Action 14, dated 14 March 2018. 2. See EY Global Tax Alert, OECD releases BEPS Action 14 on More Effective Dispute Resolution Mechanisms, Peer Review, dated 31 October 2016.
Document ID: 2018-5446 |
