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The Importance of Dispute Avoidance and Resolution Mechanisms: Domestic and international
Konrad Szpadzikspecialist in APA UnitDirect Taxes Department
Double taxation
Double taxation is the levying of tax by two or more jurisdictions on the same declared income
Legal double taxation - two countries levy tax on the same income of the same taxpayer (source vs. residency)
Economic double taxation refers to the taxation of two different taxpayers with respect to the same income (or capital)
Transfer pricing disputes
200 WAS TAXED TWICE
Income after audit 2200
State A State B
Income 2000 Income 1000
price 500
new price 300
Transfer pricing disputes
DISPUTE
Why avoid?
• meetings (with taxpayers, other TA’s),
• travels,
• collecting information from taxpayer and local tax units,
• independent experts, analysis, translations,
• labour costs
• exchange of correspondence between TA’s,
• cooperation with local tax units,
• attitude of second TA,
• cooperation with taxpayer
Costs:
Time:
Tools
OECD:
• Model Tax Convention on Income and on Capital,
• Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations,
• current work (WP6 TPI),
United Nations:
• UN Model Tax Convention,
• Transfer pricing practical manual for developing countries.
European Union:
• Convention 90/436/EEC on the elimination of double taxation in connection with the adjustment of transfers of profits between associated undertakings,
• Joint Transfer Pricing Forum (JTPF) reports.
How to resolve?
Double tax agreements:
• Mutual Agreement Procedure (art. 25 of OECD MK),
• Exchange of information (art. 26 of OECD MK).
Poland has 89 DTAs.
EU Arbitration Convention:
Poland since 2007
Arbitration Convention
The case must be presented within three years of the first notification of the action which results or is likely to result in double taxation
If the CA is not itself able to arrive at a satisfactory solution, shall endeavour to resolve the case by mutual agreement with another CA
If the CAs fail to reach an agreement within two years of the date on which the case was first submitted, they shall set up an advisory commission charged with delivering its opinion on the elimination of the double taxation in question.
Advisory commission
The advisory commission shall consist of:
• its Chairman,
• two representatives of each competent authority concerned,
• an even number of independent well known authority to be appointed by:
mutual agreement from the list of persons or, in the absence of agreement, by the drawing of lots by the competent authorities concerned.
Advisory commission
The advisory commission shall deliver its opinion not later than six months from the date on which the matter was referred to it.
The advisory commission shall adopt its opinion by a simple majority of its members.
The costs of the advisory commission procedure, shall be shared equally by the Contracting States concerned.
The CAs may take a decision which deviates from the advisory commission's opinion.
BUT
If they fail to reach agreement, they are obliged to act in accordance with that opinion.
Polish perspective
Around 13 arbitrations in progress
Couple cases already resolved
Increased interest in this procedure amongst taxpayers
Almost all TP cases conducted on the basis of the convention
Faster procedure than MAPs
MAP – CAs shall endeavour to resolve the case
Arbitration – CAs have to resolve the case
No advisory commission yet
Most cases with Germany
Meetings – the best way to shorten the procedure!
How to prevent?
Advance Pricing Agreements Well-prepared TP documentation
APA in Poland
APA regulations in Poland since 2006
Unilateral, bilateral and multilateral APAs
APA as an administrative decision
Time limits to issue a decision 6 months for unilateral APA, 12
months for bilateral APA and 18 months for multilaterals.
APA application fee - 1% of the value of a transaction with certain
limitations
Preliminary meetings before application
Possibility of prolonging, changing
or revoking an APAs
Monitoring of APA
Taxpayer’s perspective
APA are viewed by taxpayers as a positive option
• increases security of investments,
• attracts investments in the country,
• promotes stability of operations
No need of audit to establish the correct transfer pricing
Increased interest in bilateral and multilateral APAs
amongst taxpayers
Unilaterals = shorter procedure
Bilaterals and multilaterals = higher certainty
Statistics
Unilateral Bilateral Multilateral Total
Concluded APAs 21 2 - 23
Cases in progress3
(including one prolongation)
2 1 6
What we need?
Cooperation
Sharing knowledge
Learning one another’s approach
Meetings, trainings, workshops (case studies)
Thank you for your attention
Konrad Szpadzik
12 Swietokrzyska St.00-916 Warsaw
tel.: +48 22 694 48 87fax :+48 22 694 33 31Email: [email protected]
www.mf.gov.pl
