Executive summary

On 22 March 2021, the Organisation for Economic Co-operation and Development’s (OECD) Forum on Tax Administration (FTA) published a list of 19 jurisdictions (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Russia, Singapore, Spain, the United Kingdom and the United States) that have so far confirmed their participation in the next phase of the International Compliance Assurance Programme (ICAP). The OECD indicates that the list will be updated as additional tax administrations confirm their participation. The announcement of the list follows the release of the new ICAP Handbook on 18 February 2021.

The list of participating jurisdictions was accompanied on the OECD website by a spreadsheet providing additional information regarding each participating tax administration’s approach to ICAP implementation and operation. The OECD indicates that this spreadsheet will be updated as further information is received.

Further background on ICAP, including discussions of eligibility, timing, required documentation, the ICAP risk assessment process and the assurance potentially available is provided in this EY Global Tax Alert.

Detailed discussion

About ICAP

ICAP is a voluntary tax risk assessment and assurance program designed to facilitate open and co-operative multilateral engagement between large multinational enterprise (MNE) groups that are willing to engage actively and transparently with tax administrations in multiple jurisdictions where the group has business activities. It utilizes a group’s Country-by-Country (CbC) reports, transfer pricing (TP) master file and local files and other information provided by the group and aims to provide an efficient, effective, clear and coordinated approach to achieving early tax certainty and assurance for MNEs. The OECD released the ICAP handbook to aid in its implementation and to provide more details to tax administrations and taxpayers that may have an interest in participating.

ICAP’s scope covers the assessment and assurance of TP risk, permanent establishment (PE) risk and other categories of international tax risk (e.g., hybrid mismatch arrangements, withholding taxes or treaty benefits) as agreed by the MNE group, the ICAP lead tax administration and other covered tax administrations.

The first ICAP pilot was launched in January 2018, with the participation of eight FTA member jurisdictions: Australia, Canada, Italy, Japan, the Netherlands, Spain, the United Kingdom and the United States. The second ICAP pilot program, which commenced in March 2019, included 11 additional participating tax administrations: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Luxembourg, Norway, Poland and Russia.

In the ICAP handbook, the FTA confirms that participation in the full program is now available to all 53 FTA member tax administrations. As of 22 March 2021, one jurisdiction that had not participated in the initial pilots, Singapore, is listed as participating,¹ and Poland is no longer listed as a participant. The list of participating countries will continue to be updated as additional tax administrations confirm their participation. The deadline for applications from MNEs for the next phase of ICAP risk assessments is 30 September 2021.

ICAP additional information spreadsheet

The ICAP spreadsheet provides information on the following topics for each participating tax administration:

• Who to contact regarding potential participation in ICAP
• The composition of the ICAP team
• Whether the tax administration requires consent² from the participating MNE group in order to discuss local tax arrangements
• Available virtual meeting platforms for taxpayer-tax administrator conversations
• Arrangements for access to data room technology
• Preference for the number of periods to be assessed and the roll-forward (i.e., assurance) periods covered
• Limitations for specific issues that the tax administration is unlikely to include in the ICAP scope
• Outcome letters and caveats
• Reporting requirements³ for roll-forward periods
• Issue resolution preferences and/or restrictions
• Approach to the ICAP risk assessment process

It is clear from the ICAP additional information document that there will not be complete consistency in the implementation of ICAP across all participating jurisdictions. This may be driven by local law and/or the chosen approach of each participating tax administration.

One difference among the participating tax administrations is the composition of their ICAP teams, where some jurisdictions have separate and specialist representatives while others have chosen to allocate responsibility for ICAP to their existing Competent Authority teams. Furthermore, whether each participating tax administration requires consent from an MNE’s local entities to discuss their tax arrangements directly with their MNE parent group varies across jurisdictions.

Some of the most apparent implementation differences among tax administrations are highlighted below:

• “Preferences for number of periods assessed in ICAP and the periods covered by roll forward of the assessment”:
  • Twelve of the participating tax administrations will cover two tax years and two roll-forward periods
  • Finland has no fixed roll-forward periods
  • Italy and Russia will cover one tax year with two roll-forward periods
  • Japan will choose on a case-by-case basis
• “Limitations for specific issues which you [tax administration] are unlikely to include in the ICAP scope”:
  • Nine jurisdictions have no apparent limitations
  • Canada is unlikely to include cash pooling or financial transactions, such as hybrid mismatches
  • Finland indicates that transactions relating to business restructurings and intangible property (IP) may be too complex to be addressed in an assessment
  • Japan excludes any transactions that are already subject to an Advance Pricing Agreement (APA), audit, Mutual Agreement Procedure (MAP) or litigation
  • Norway is unlikely to accept MNEs into the program if they meet certain definitions as set out in the Norwegian Petroleum Tax Act
  • Russia indicates that certain transactions (such as hard to value intangibles) and complex financial arrangements may not be suitable for the assessment
  • Spain indicates that tax rulings referring “to the condition of a PE” would not be part of the assessment
• “Outcome letters and caveats”:
  • Several tax administrations will define outcomes by assigning either “Low Risk,” “Medium Risk,” and “High Risk,” or “Low Risk,” and “Not Low Risk”
  • Alternatively, some countries such as Norway will not characterize the risk profile and instead will give assurance as to whether the tax authority anticipates using additional compliance resources during the course of the roll-forward period(s)
• “Issue resolution preferences or restrictions”:
  • Five jurisdictions have no preferences or restrictions regarding issue resolution
  • Several jurisdictions indicate that issue resolution may act both retrospectively and prospectively. Australia and the Netherlands, for example, both indicate that retrospective adjustments could potentially be implemented unilaterally, while noting that any prospective issue resolution is likely to involve discussions with additional revenue authorities
  • The Netherlands indicates that information gathered as part of the ICAP process may be utilized in connection with an application for an APA
  • Japan indicates that it cannot make corresponding adjustments through an ICAP review alone and Russia similarly indicates that correlative relief is not possible without a full MAP

The ICAP additional information spreadsheet also includes a reference section addressing frequently asked questions that the OECD has received from MNE groups.

Implications

The published list of participating tax administrations does not reflect any overall expansion in the number of jurisdictions in which MNE groups may receive tax assurance via the ICAP program, although additional tax administrations may become ICAP participants prior to the 30 September 2021 deadline for MNEs to apply for inclusion in the next phase of ICAP risk assessments.

The ICAP program is intended to provide “comfort” rather than “certainty,” in contrast to existing cross-border dispute resolution processes such as APAs, joint and simultaneous tax audits, MAPs and arbitration that are intended to eliminate rather than simply lessen risk. Moreover, the new documents released make clear that there will be differences in tax administrations’ approach to the implementation of ICAP which may mean that taxpayers are not able to obtain consistent levels of comfort across multiple jurisdictions.

ICAP can however offer an accelerated timeline in comparison to other dispute resolution tools, adding the benefit of a multilateral approach in a concurrent and collaborative setting. Moreover, there is also the opportunity for ICAP to complement other existing methods of dispute resolution, as noted by several participating tax administrations. MNE groups should determine if ICAP is suitable for their specific needs and requirements by balancing the advantages and disadvantages of various dispute resolution tools.

In that regard, tax professionals may wish to participate in one of two virtual OECD ICAP Awareness Events taking place on 30 March 2021 at 09:00 (CEST) and on 1 April 2021 at 17:00 (CEST). The OECD describes these sessions as intended to help MNE groups learn more about the ICAP program and to allow them to ask any questions they may have. Those interested can register by e-mailing ICAP@oecd.org.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Solutions LLP, Singapore

• Luis Coronado | luis.coronado@sg.ey.com

Ernst & Young LLP (United States), Washington, DC

Barbara M. Angus | barbara.angus@ey.com

Ernst & Young LLP (United States), Greenville, SC

Rob L Thomas | rob.l.thomas1@ey.com

Ernst & Young LLP (United Kingdom), Global Tax Desk Network, London

Joel Cooper | joel.cooper@uk.ey.com

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ronald van den Brekel | ronald.van.den.brekel@nl.ey.com

Marlies de Ruiter | marlies.de.ruiter@nl.ey.com

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Endnotes

1. See Inland Revenue Authority of Singapore ICAP information page, About the International Compliance Assurance Programme.
2. Note from the OECD: The lead tax administration for an ICAP risk assessment will discuss the detailed requirements with MNEs at an early stage in the process.
3. Note from the OECD: All assessments in ICAP will be based on the facts and documents seen in the program and the onus will be on an MNE is all cases to notify a tax administration of any changes of circumstances. These requirements are over and above that basic requirement.