Proposed Revenue Procedure on Tax Treaty Competent Authority Assistance

26 Jan

Proposed Revenue Procedure on Tax Treaty Competent Authority Assistance

The Internal Revenue Service has proposed a revenue procedure, I.R.B. No. 2013–50, Dec 9, 2013, that would update and supersede Rev. Proc. 2006–54, 2006–2 C.B. 1035, providing guidance on requesting assistance from the U.S. competent authority, acting through the Advance Pricing and Mutual Agreement program and the Treaty Assistance and Interpretation Team, under the provisions of U.S. tax treaties. U.S. tax treaties permit taxpayers to request the assistance of the U.S. competent authority in alleviating taxation not in accordance with the treaty. The proposed revenue procedure would substantially restate Rev. Proc. 2006–54 in the faint hopes of improving clarity, readability, and organization; and to reflect structural changes undertaken by the Service since 2006, including the establishment of the Large Business & International Division (U.S. competent authority).

This grand document, of succulent multi-national interest:

– clarifies that competent authority issues may arise as a result of taxpayer-initiated positions, as opposed to being a strict instrument of public international law;
– clarifies that the U.S. competent authority is available, whether or not in the course of the mutual agreement process, for informal consultations, including foreign tax credit issues;
– recognizes that the U.S. competent authority can expand the scope of a mutual agreement case to include additional treaty countries, competent authority issues, or taxable years;
– elaborates on interactions of requests for competent authority assistance and advance pricing agreements;
– provides new pre-filing procedures applicable to mutual agreement cases, including mandatory submission of a pre-filing memorandum in cases raising certain issues;
– specifies that the U.S. competent authority accepts requests for assistance with respect to certain foreign pension plan determinations;
– provides new streamlined procedures for invoking the accelerated competent authority procedure without consent of an office conducting examinations;
– generally subjects small case requests to the same requirements as other requests, subject to case-by-case minimization of administrative burdens;
– increases thresholds for small case qualification to $5,000,000 for a corporation or partnership and $1,000,000 for other persons;
– specifies an example of an unreasonable taxpayer condition to acceptance of a competent authority resolution, resulting in denial of assistance, and states additional bases for denying U.S. competent authority assistance: More particularly, the U.S. competent authority may deny assistance, in whole or in part, at any point in the MAP process, and will generally take such action if any of the following circumstances are present:
(1) providing assistance to the taxpayer would be inconsistent with the tax treaty;
(2) the taxpayer has expressed that it is willing to accept a MAP resolution only under conditions that are unreasonable or prejudicial to the interests of the U.S. government;
(3) The issue on which competent authority assistance is sought is the same as or similar to an issue considered in evaluating a prior MAP or bilateral or multilateral APA request;
(4) The taxpayer agreed to or acquiesced in a foreign-initiated adjustment involving significant legal or factual issues without previously having consulted the U.S. competent authority;
(5) The taxpayer’s conduct before filing its MAP request or after the MAP process has been initiated has significantly impeded the ability of the IRS to adequately examine and address the MAP issues for which assistance has been requested or the ability of the U.S. competent authority to resolve the MAP case;
(6) The subject matter of the MAP request includes certain issues pending in litigation;
(7) The taxpayer rejected a request to extend the period of limitations for the taxable periods covered by the MAP request;
(8) The MAP issue was included in a protest to IRS Appeals and was not properly severed from such protest;
(9) The MAP issues covered by the MAP request cannot be adequately resolved without the involvement of one or more additional foreign competent authorities and either the taxpayer fails to cooperate in seeking the involvement of such additional foreign competent authorities or such competent authorities refuse to participate in multilateral consultations on the MAP case;
(10) An adequate resolution of the MAP case would require consideration of issues involving the taxpayer and members of the controlled group located in non-treaty jurisdictions and the taxpayer fails to disclose such issues in the MAP process; or
(11) In MAP cases involving taxpayer-initiated positions, the request evinces after-the-fact tax planning or fiscal evasion or is otherwise inconsistent with sound tax administration.

The Service haughtily claims that the U.S. competent authority’s decision as to whether a MAP request is complete or to deny, suspend, or terminate assistance is not subject to administrative review.

The proposed revenue procedure also:
– describes consultation requirements in treaty limitation-on-benefits provisions, the possibility of requiring withdrawal of a U.S.-initiated adjustment, and taxpayer requests to make a joint presentation to the U.S. and foreign competent authorities;
– regulates the Simultaneous Appeals Procedure;
– provides, subject to a limited exception, that the U.S. competent authority will not accept a request for assistance if the taxpayer seeks IRS Appeals review of a competent authority issue;
– clarifies the procedures applicable a request for U.S. competent authority assistance when a matter is pending in litigation;
– restates and revises U.S. competent authority procedures with respect to repatriation payments made in the mutual agreement context;
– describes basic procedures applicable where a tax treaty contains a provision for mandatory arbitration; and
– the user fee for requests for relief with respect to limitation on benefits has been increased to $27,500.

 

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