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Transfer Pricing MAP Cases on the Rise

9th December 2021

The OECD’s mutual agreement procedure, or MAP as it’s better known, is sort of a mature, civilized sit-down, where competent authorities mediate tax disputes involving members of the 141 countries that make up the Inclusive Framework. Unlike messy court battles, in MAP cases issues involving double taxation or permanent establishments are usually resolved quietly and amicably, and the idea is that everyone—tax authorities and taxpayers—all go home happy. The OECD’s recent report on MAP cases shed light on some interesting data: While MAP cases can involve various tax issues, in 2020, the number of most tax-based MAP disputes declined—but the number of transfer pricing MAP cases went up. And by transfer pricing MAP cases, the OECD means cases that include “the attribution of profits to a permanent establishment” or “the determination of profits between associated enterprises.” In fact, year-over-year, about 15% more transfer pricing cases opened and 6% more cases closed. However, not all of the resolved cases were good for everyone. The number that of closed cases which fully resolved the issue of double taxation or complying with a tax treaty, dropped from 75% in 2019 to 55% in 2020. In other words, a lot. Granted, given the COVID-19 pandemic, 2020 was a pretty unusual year. And the OECD claims that cases closed partly because, like the rest of the world, competent authorities were working via Zoom (or the like) and they were trying to tackle easier cases to clear the decks. for rising number of new ones. What does this mean? Experts say, it’s a good thing—that more countries are addressing the BEPS risks that come with transfer pricing and that in the future, taxpayers will report “the right amount of profits in the right tax jurisdictions and at the right time.”