If a tax treaty is engaged, it may be possible to ask HMRC to consider how that tax treaty will interact with the enquiry – that is what was said in the previous post of our series of blogs on tax disputes in the UK . Here, we consider in more detail the mutual agreement procedure (MAP) for resolving disputes under double tax treaties (based on Article 25 of the OECD’s Model Tax Convention on Income and on Capital).

What is the value of MAP?

When a dispute concerns a matter that will also be relevant in another jurisdiction, such as the pricing of a cross-border transaction or the question where an entity is tax resident, a discussion between HMRC and the other relevant tax authority can be helpful (assuming, of course, that those tax authorities can ultimately agree on a solution in accordance with the applicable double tax treaty). A taxpayer’s role in MAP is, however, very limited. MAP therefore may not the most appropriate venue for a taxpayer to argue its case on a point of law.

What is your role in MAP? 

After applying to HMRC for a matter to go to MAP, your role will be rather limited. MAP is a bilateral discussion between the two tax authorities and the taxpayer is not officially a party to it. MAP discussions are confidential between the tax authorities in order to promote their full cooperation with each other. Neither does a taxpayer have a right to access the papers relating to its MAP application. 

So, your ability to influence the outcome of the MAP discussions is limited by reference to the information you provide, and the arguments you set out in, your initial application (and any further information that may be requested by the tax authorities at a later stage). It is, therefore, crucial that the documents provided are clear and robust. Engaging with HMRC early and being responsive to requests for input is key.

How soon can you expect a decision by the tax authorities?

MAP can take years to reach a conclusion, if the tax authorities manage to agree at all (although the OECD’s MAP statistics for 2023 showed that a record number of cases had been closed, with 74% of cases reaching full resolution). 

A growing number of double tax treaties also envisage arbitration where the tax authorities cannot reach agreement within a certain timeframe (usually two years). The form that the arbitration takes will be dictated by any memoranda of understanding between the jurisdictions, and these are not generally publicly available (although there are exceptions). 

Do you have to go with what the tax authorities have decided?

No. You are free to reject the agreement reached by the tax authorities, if you disagree with it. But this brings the MAP process to an end; there is no right to appeal the tax authorities’ decision and there can be no further recourse to MAP. You would have to pursue domestic remedies instead. 

The position can be slightly different where the case has moved into arbitration. For the arbitration to be binding on the tax authorities, the taxpayer must usually agree to the resolution; but some double tax treaties do not bind the parties to the outcome at all.

If you accept the MAP outcome, the agreement reached between the tax authorities will take effect and, where relevant, you would be invited to submit to HMRC an amended self-assessment or a claim for relief. An equivalent process should be followed in the other jurisdiction. 

How does MAP interact with the domestic appeals process?

Applying for MAP does not preclude you from appealing a closure notice or discovery assessment, but HMRC would usually require the appeal to be stayed for the duration of the MAP process. If the case is then resolved through MAP, there would be no need to pursue the appeal; if it is not resolved, the appeal would proceed as usual. In that latter case, pursuing MAP would have merely worked to prolong the domestic disputes process – which is unfortunately a risk that taxpayers will have to take when applying for MAP. 

How we can help…

Please get in touch with any of us or another member of Slaughter and May’s market-leading tax disputes team if you have any questions on the topics discussed in this blog or another tax disputes query. 

We have extensive experience in advising at every stage of a wide range of from questions of UK corporation tax, partnership taxation and VAT grouping to treaty interpretation and transfer pricing. Whether you are looking for strategic advice in respect of an ongoing issue or proactive risk management through the creation of defence files or an audit of existing processes, we can help.