Chapter INTM423080

Published date09 April 2016
Record NumberINTM423080
General Remarks

The UK is in favour of using arbitration to eliminate double taxation where the Competent Authorities have been unable to reach agreement. Article 25(2) of the Model Convention requires Competent Authorities to endeavour to resolve cases by mutual agreement - this is not a commitment to eliminate taxation not in accordance with the Model Convention. To eliminate taxation not in accordance with the Model Convention, the 2015 version of the Model Convention contains Article 25(5) which requires unresolved MAP cases to enter arbitration within two years from the presentation of the MAP case. The arbitration panel is required to arrive at a decision that eliminates taxation not in accordance with the tax treaty and that decision is binding on both treaty partners.

It is UK policy to include a provision for arbitration in its double tax treaties. The scope of arbitration provisions in the bilateral double tax treaties may vary from the OECD Model Convention. Part VI of the MLI contains 9 articles that provide the option for signatories to commit to mandatory binding arbitration. The UK has committed to mandatory binding arbitration through the MLI. Although the arbitration articles in the MLI set out a framework for the contracting states to apply mandatory binding arbitration, this framework allows a degree of flexibility in scope and conduct of arbitration.

Also available to residents of the EU is arbitration via the EUAC. While the UK remains a member of the EU, a resident of the EU will be able to make claims under the EUAC in respect of transfer pricing and permanent establishment cases if the case involves the UK and another member state.

Arbitration through Bilateral Treaties

The UK seeks to follow article 25(5) of the Model Convention in its bilateral double taxation treaties. As the UK does not restrict access to MAP in cases where a decision on the issues subject to the MAP request have already been rendered by a court or administrative tribunal, it follows that the UK would not seek to restrict access to arbitration in such cases. A number of other states may restrict MAP where the issues have already been subject to a decision of a court or administrative tribunal

The Model Convention provides that unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision, it shall be binding and shall be implemented notwithstanding any time limit in the domestic law of...

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