By François Vincent, Brian Trauman, Steven Back, Clémence Bon and Irina Puchkova, KPMG LLP
In a recent paper, titled International Compliance Assurance Programme – Oasis or Mirage, which appeared in Tax Management Transfer Pricing Report on August 23, 2018, the authors reviewed and compared the international compliance assurance program (ICAP)’s salient features with those of other existing programs aimed at resolving double taxation.
Those programs are the various mechanisms involving two or more tax authorities found in or resulting from international tax treaties: the mutual agreement procedure (MAP), advance pricing arrangements (APA), joint audits, simultaneous tax examinations, and ICAP. The following table summarizes the highlights of that comparison as it relates to the following topics: (1) goals; (2) parties; (3) process; (4) documentation required; (5) timing; (6) availability; (7) benefits; and (8) drawbacks.
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|MAP||APA*||Joint Audit||Simultaneous Tax Elimination||ICAP|
|Goals||Resolve double taxation in relation to past years||Avoid double taxation in relation to future years||Avoid double taxation in relation to future years||Audit related taxpayers at the same time||Avoid full audit of related taxpayers|
|Parties||MNE and competent authorities||MNE and competent authorities||MNE and competent authorities||MNE and tax authorities’ representatives||MNE and tax authorities’ representatives|
|Documentation Required||Extensive during audit prior to MAP**||Extensive||Extensive||Extensive||Extensive|
|Timing||A few months to a few years||3+ years||12-18 months***||Undefined||4-14 months***|
|Availability||Where there is an applicable tax treaty||At the discretion of the relevant tax authorities||At the discretion of the relevant tax authorities||At the discretion of the relevant tax authorities||At the discretion of the relevant tax authorities|
|Benefits||Resolution of double taxation and potential for ACAP||Avoidance of double taxation and potential application of rollback||Avoidance of double taxation||Assists tax authorities in having more comprehensive understanding of MNE’s operations and transactions||Potential avoidance of double taxation by avoidance of full audit|
|Drawbacks||No obligation on tax authorities to resolve double taxation****||Expensive & can take a long time to complete||No obligation on tax authorities to resolve double taxation||Avoidance of double taxation is not one of the goals||Not targeted to avoid double taxation*****|
* Unilateral APAs are not covered in this table
** If mandatory binding MAP arbitration is available, the entire process is concluded within 3 or 4 years
*** In theory. No official statistics are available.
**** Except, generally, for MAP cases covered by mandatory binding MAP arbitration.
***** Although it may be an indirect resut if the ICAP is sucessful.
Given the comparisons outlined above, we would offer the following advice/observations:
In the final analysis, it is probably too early to say whether the ICAP will become the next panacea for double-tax woes, but it will be interesting to follow how it develops in practice in order to determine its relative value in the portfolio of bilateral programs targeting transfer pricing.
These comments represent the views of the authors only, and do not necessarily represent the views or professional advice of KPMG LLP.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the independent U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s independent member firms have 197,000 people in 154 countries.