Welcome to In Dispute, the latest news and developments in the tax disputes landscape from KPMG’s Tax Dispute Resolution network. This podcast series provides timely insights into a variety of tax controversy topics.
I’m Sharon Katz-Pearlman and I lead KPMG’s U.S. and Global Tax Dispute Resolution networks. We are glad to have you listening in.
This episode focuses on “ICAP 2.0” – the second iteration of the International Compliance Assurance Programme. The brainchild of the OECD’s Forum on Tax Administration, (or FTA), ICAP is focused on providing multinationals with the opportunity to obtain increased tax certainty when dealing with a number of revenue authorities.
ICAP was conceived as a voluntary program in which a multinational could participate and obtain a co-operative risk assessment of its key tax issues, and launched in January 2018, when five multinationals (who had voluntarily joined the program) met with senior revenue authorities from the 8 participating jurisdictions, to discuss specific issues of common interest – with a focus on transfer pricing and permanent establishment issues. Using country-by-country or “CbC” reports as a starting point, the idea behind ICAP was to provide multinationals who were willing to engage in an “open and transparent fashion,” with increased tax certainty for certain activities and transactions. ICAP does not provide the type of legal certainty that is obtained from an advance pricing agreement or APA, or from the US’ CAP program, but it provides the multinational with an acknowledgement from the revenue authorities of the level of risk that the taxpayer and its issues/transactions presents to the tax administrations. The obvious goal for participating multinationals is to fall into the low risk category.
The initial ICAP pilot involved five taxpayers in a review by up to eight participating jurisdictions: Australia, Canada, Italy, Japan, the Netherlands, Spain, the UK and the US were the participating jurisdications. Not every jurisdiction “sponsored” a multinational entity and not every jurisdiction participated in a review of the participating entities. On March 28, 2019, at the 12th annual FTA plenary meeting held in Santiago, Chile (which I was fortunate enough to attend), the FTA announced a second ICAP pilot, and issued a new handbook, ICAP Pilot Handbook 2.0, providing an overview of the current thinking on the program and laying out the anticipated benefits to interested taxpayers.
A number of considerations are driving the ICAP program forward, including : the FTA’s interest in providing improved tax certainty to multinationals, an ability to use the program to help limit the number of disputes that arise (thereby helping to prevent unnecessary disputes, and ultimately limiting the number of mutual agreement procedure / MAP cases) which are currently on the rise; increased cooperation amongst the FTA countries, as well as with the Joint International Tax Shelter Information and Collaboration (JITSIC) program and the Large Business and International Programme – both programs which are in place and which can help assist with multilateral interactions with multinationals.
The anticipated benefits of ICAP are clear: it provides multinationals with an opportunity to present and discuss their CbC information with a number of revenue authorities at the same time. It provides efficiencies to both the revenue authorities, which can collaborate, share information and leverage each other’s findings and to the taxpayer, who can engage with several jurisdictions at once avoiding the need to deal separately with each jurisdiction. ICAP is intended to help develop a stronger relationship between the revenue authorities and the multinationals as they work together transparently and cooperatively -- an important element for all members of the tax community.
The ICAP 2.0 handbook clearly sets forth the differences between this newer version and the original program. Importantly:
- ICAP 2.0 will involve 18 jurisdictions, up from the initial 8. Austria, Belgium, Denmark, Finland, Germany, Ireland, Luxembourg, Norway, Poland and France have joined the list of participating administrations.
- In ICAP 1.0, multinationals were invited to participate. ICAP 2.0 envisions that multinationals will indicate their interest in the program by approaching the revenue authority in the jurisdiction of the ultimate parent entity (or UPE). In the event that the UPE is not participating in ICAP, a taxpayer may approach a revenue authority in another jurisdiction to serve as a surrogate or “stand in” lead tax administration.
As of the date of this recording we are aware of a number of the MNE that have joined ICAP – a number in excess of those that participated in ICAP 1.0.
- Issues for consideration will be expanded to include withholding tax, hybrids and other issues. These are in addition to transfer pricing and PE, the original ICAP issues.
Of course, many elements of the original program remain, with the overall goal of the program intact: to provide multinationals with a way to engage with multiple jurisdictions simultaneously – arguably resulting in a more efficient disputes management process. This focus on multi-jurisdictional disputes “efficiencies” will continue. Thus, if ICAP 2.0 is not a “fit” for you – there may be a new program that is.