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September 23, 2024
2024-1743

OECD publishes first simplified peer review reports on BEPS Action 14

  • The OECD has released the first reports under the new simplified peer review process on jurisdictions' implementation of the minimum standard for dispute resolution under BEPS Action 14.
  • The simplified process is available for jurisdictions that do not have significant experience with the mutual agreement procedure and that opt not to undergo the full peer review process.
  • The information provided through the peer reviews of Action 14 is valuable as companies evaluate the dispute prevention and resolution mechanisms that they may use to increase tax certainty.
 

Executive summary

On 16 September 2024, the OECD released the first two batches of reports reflecting the outcome of Stage 1 of the new simplified peer review process on implementation of the Base Erosion and Profit Shifting (BEPS) Action 14 Minimum Standard on dispute resolution under the mutual agreement procedure (MAP). This simplified review process, which began in January 2023, is designed for jurisdictions that do not have "meaningful MAP experience" and that opt not to undergo the full peer review process. The simplified process evaluates a jurisdiction's tax treaty network, MAP profile, MAP guidance, compliance with the MAP Statistics Reporting Framework and the practical application of the minimum standard, where applicable.

The simplified peer review is conducted in two stages: the initial Stage 1 Peer Review and the subsequent Stage 2 Peer Monitoring. These inaugural Stage 1 reports cover 20 jurisdictions: Albania, Antigua and Barbuda, Belize, Botswana, Colombia, Cook Islands, Costa Rica, Dominican Republic, Egypt, Jamaica, Jordan, Lithuania, Mauritius, Nigeria, North Macedonia, Pakistan, Serbia, Seychelles, Sri Lanka and Zambia.

Detailed discussion

Background

In October 2015, the OECD released the final reports on all 15 action points of the BEPS Action Plan.1 Action 14, on making dispute resolution mechanisms under MAP more effective, establishes minimum standards subject to peer review as well as some best practices.

In October 2016, the OECD released the peer review documents for Action 14, including the Terms of Reference and Assessment Methodology.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. Stage 1 involves a review of how a BEPS Inclusive Framework member implements the minimum standard based on its legal framework for Mutual Agreement Procedures (MAP) and its application in practice. Stage 2 involves a review of the measures the member takes to address any shortcomings identified in Stage 1.

On 18 November 2020, the OECD released a Consultation Document seeking stakeholder input on proposals for the review of the Action 14 minimum standard. This was followed by a public consultation on 1 February 2021.3

On 24 January 2023, the OECD and G20 Inclusive Framework on BEPS released: (i) a New Assessment Methodology for continuing the peer review process with respect to BEPS Action 14 on improving MAP, aiming to increase efficiencies and improve dispute resolution timelines; (ii) new data points to be reported in the annual MAP Statistics; and (iii) the creation of a new annual framework for reporting Advance Pricing Arrangement (APA) statistics.4 The simplified peer review process started in January 2023 and is being carried out under an assessment schedule.

The New Assessment Methodology sets out how the monitoring of the Action 14 minimum standard is to be conducted from 2023 onward (the Continued Monitoring Process). While the original Assessment Methodology allowed for deferral of the peer review of certain jurisdictions, such deferral is not provided for under the Continued Monitoring Process. Therefore, all Inclusive Framework member jurisdictions (whether previously peer reviewed or otherwise) will be subject to monitoring, under a full or simplified peer review process. The full peer review process will generally follow the process in the original Assessment Methodology. A simplified process is available for jurisdictions that are considered not to have "meaningful MAP experience" and that do not choose to undergo the full peer review process.

The simplified process is limited to reviewing a jurisdiction's tax treaty network, MAP profile, MAP guidance, compliance with the MAP Statistics Reporting Framework and practical application of the minimum standard (where applicable). The goal of the simplified process is to support these jurisdictions in developing a more robust MAP program for handling future MAP cases. The simplified peer review is conducted in two stages, as outlined in the original Assessment Methodology: Stage 1 Peer Review and Stage 2 Peer Monitoring.

First two batches of simplified peer reviews

On 16 September 2024, the OECD released the first two batches of reports reflecting the outcome of Stage 1 of the simplified peer review process for the implementation of the BEPS Action 14 Minimum Standard. Batch 1 covered Albania, Belize, Cook Islands, Costa Rica, Dominican Republic, Jamaica, Jordan, Mauritius, Pakistan and Zambia. The work on Batch 1 began in January 2023, and the peer review reports were finalized and approved by the Inclusive Framework on 12 January 2024.

Batch 2 covered Antigua and Barbuda, Botswana, Colombia, Egypt, Lithuania, Nigeria, North Macedonia, Serbia, Seychelles and Sri Lanka. The work on Batch 2 started in April 2023, and the Inclusive Framework approved the peer review reports on 1 April 2024.

According to the OECD press release, the results from the first two batches of the simplified peer review indicate that most jurisdictions participating in the process either have or are working to establish a policy framework for MAP, as well as a robust MAP program, and are willing to take the necessary measures to achieve the efficient, effective and timely resolution of disputes.

The press release also indicates that the BEPS Multilateral Instrument (BEPS MLI), which is intended to facilitate the implementation of the minimum standard of BEPS Action 14 and other BEPS Actions, has been signed by Albania, Belize, Colombia, Costa Rica, Egypt, Jamaica, Jordan, Lithuania, Mauritius, Nigeria, North Macedonia, Pakistan, Serbia and Seychelles. Additionally, Albania, Belize, Costa Rica, Egypt, Jordan, Lithuania, Mauritius, Pakistan, Serbia and Seychelles have ratified the BEPS MLI. Their ratification is expected to align their treaties with the Action 14 minimum standard. Additional bilateral negotiations are either ongoing or have been successfully concluded.

In terms of specific processes, the peer reviews determined that Albania, Costa Rica, Colombia, Lithuania, Nigeria and Sri Lanka have a documented bilateral notification/consultation process in place for cases in which an objection is not sustained by their competent authority.

The peer reviews also found that Costa Rica and Nigeria either close their MAP cases within the targeted average time of 24 months or have a competent authority that is considered to be adequately resourced. Antigua and Barbuda, Belize, Cook Islands, Jamaica, Jordan and Seychelles reported having no MAP experience.

In addition, the peer reviews determined that Albania, Antigua and Barbuda, Colombia, Costa Rica, Dominican Republic, Jamaica, Jordan, Lithuania, Mauritius, Nigeria, Pakistan, Seychelles, Sri Lanka and Zambia provide that MAP agreements can be implemented notwithstanding domestic time limits.

Finally, the peer reviews reported that Colombia, Costa Rica, Dominican Republic, Lithuania, Mauritius, Nigeria, Serbia, Sri Lanka and Zambia have recently issued or updated their MAP guidance.

Next steps

With the Stage 1 Peer Review now complete for these two batches of jurisdictions, the OECD's next step is to initiate the Stage 2 Peer Monitoring. This phase, set to commence two years after the approval of the Stage 1 reports, will focus on monitoring the progress made by each jurisdiction in implementing any recommendations received in the Stage 1 review and in enhancing their dispute resolution mechanisms.

The OECD will continue to publish peer review reports under Stage 1 of the simplified review process and Cycle 1 of the full peer review process in batches in accordance with the Action 14 peer review assessment schedule.

Implications

The BEPS Action 14 update provides valuable information regarding the tax dispute prevention and resolution agenda being advanced by the OECD and participating jurisdictions. The ongoing reporting of MAP and APA statistics also will provide information that will be useful to companies in assessing their options for dispute prevention and resolution. Tax certainty is critical in today's constantly changing environment and companies should continue exploring the various dispute prevention and resolution mechanisms available to them.

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Endnotes

1 See EY Global Tax Alert, OECD releases final reports on BEPS Action Plan, dated 6 October 2015.

2 See EY Global Tax Alert, OECD releases BEPS Action 14 on More Effective Dispute Resolution Mechanisms, Peer Review, dated 31 October 2016.

3 See EY Global Tax Alert, OECD releases Consultation Document on 2020 review of BEPS Action 14, dated 23 November 2020.

4 See EY Global Tax Alert, OECD releases revised methodology for BEPS Action 14 peer reviews and updates on reporting of MAP and APA statistics, dated 17 February 2023.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young LLP (United States), Global Tax Desk Network, New York

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

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
 
 

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