MAP guidelines for double taxation disputes
October 14, 2022
The Philippines is currently a party to 43 double taxation agreements (DTAs), all of which contain a mutual agreement procedure (MAP) provision.
The Department of Finance recently issued Revenue Regulations (RR) No. 10-2022, which took effect on 23 July 2022. RR No. 10-2022 prescribes the guidelines for filing a MAP request for assistance in resolving DTA disputes.
What is a MAP?
The MAP article in DTAs allows the competent authority or authorities of the contracting state or states to resolve disputes arising from action by one or both of the contracting states that results or will result in taxation that is not in accordance with a relevant DTA.
If a competent authority of a contracting state is not itself able to arrive at a satisfactory solution, the competent authorities of both contracting states must endeavour (but are not obliged) to resolve, by mutual agreement, any difficulties or doubts as to the interpretation or application of the DTA.
RR No. 10-2022 provides that the competent authority for the Philippines is the commissioner of internal revenue, who may delegate their functions to other competent officials of the Bureau of Internal Revenue (BIR) via a revenue delegated authority order (RDAO). As of writing, no such RDAO has been issued in relation to MAP cases.
Examples of scenarios where MAP assistance may be sought are those involving:
- the DTA tax rate - when the withholding tax rate imposed is beyond the maximum rate fixed under the DTA;
- tax residence - when a taxpayer is deemed to be a resident of both the Philippines and the other contracting state based on domestic laws, in which case the tiebreaker rules under the applicable DTA apply;
- permanent establishment - when a domestic corporation or a resident citizen is taxed in the other country on the business profit or income from independent services despite not having a permanent establishment in that country under the DTA;
- profit attribution - where taxation is not in accordance with a DTA regarding the amount of profit attributable to a permanent establishment;
- income characterisation - when a taxpayer is uncertain as to whether a DTA covers a specific item of income or of the classification of the item related to a cross-border issue; and
- transfer pricing - when a taxpayer is subjected to additional tax in one country because of a transfer pricing adjustment to the price of the goods or services transferred to or from a related party in the other country.
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