ORCANLSAPION FOR EUROPRAN E BCONO'AC GO-OFERATION Paris, 2lst October, 1960 PO/WPLE(SO)5 Scale.6 or, Engl. “WORKING PARTY NO. 14 OF THE FISCAL COMMENTER. PINAL REPORT ON MUTUAL AGREEMENT PROCEDURE (Received on 20th October, 1960) ARTIGLE ON MUTUAL AGREEMENT PROCEDURE _.. Q)-itieré a resident of a contracting State considers that the actiong of one. or both of the Contracting States result or will pesult for him in ‘taxation not in accordance with this Conven- tion; ne may, notwithstanding the internal lecal remedies, present his ase to the competent authority of that Contracting State of: which he’ is. a resident. (2) That ‘competent authority shall endeavour, 1f the objec~ thon’ appears to it to be justified and if it is not itself able’ to arrive at an appropriate solution, to resolve the case by mutual agreenent with the competent authority of the other Contracting State, with a view to the avoidance of texatlon not in ‘accordance with ¢his Convention. i a orities of the Contracting States shall 1 agreement any difficulties-or doubts arising as to the interpretation or application of this Convention, They may also consult togetler for the elimination of double taxation in cases not provided for in this Convention, 9 of the Contracting States shal? communicate with each other directly for the purpose’of reaching: an agreetient in the sense of the preceding paragraphs. — When it seems advisable in order to reach agreement to have an oral-exchange of opinions, such exchange, may take place through’a joint commission consisting of representatives of the competent authorities of ‘the Contracting States. coc (3), The competent auth endeavour to resolve by mutua. (4), The competent authori tie: 27557FO/WPLA(60)5 - COMMENTARY ON TI ARTICLE OW MUTUAL AGREEMENT PROCEDURE a Le In the article are set out the rules governing the so- f called mutual agreement procedure to be followed where. differences of opinion or other difficulties erise as to the application of the Double Taxation Convention, The Article also embodies sone @® general rules regarding the exchange of views between the competent authorities concerned onthe interpretation or the application of the Convention, Paragraphs (1) and (2) @ 2. The rules laid down in paragraphs (1) and (2), provide for the elimination in a particular case of a taxation which does not accord. with the Convention, The provisions of paragraph -(1 establish.a right for the taxpayer concerned to address himself to the sompetent authority of the Contracting State of which he 4s.a-resident, . The taxpayer may use this right whether or not he -has exhausted all. the legal remedies open to him according to the national tax legislation, Neither is it required forthe use of this right that the actions concerned have alreacy resulted in anvincorrect: taxation; the evident risk of such a taxation as a consequence of the measures already taken would be sufficient, 3. ‘The competent authority of the Contracting: State’ of which the taxpayer-is a resident. will, of course, subject his’ applica~ tion to @ careful examination and ask for all evidence available. As.a-result of such an examination the authority may find that ‘the @ matter can be solved without recourse to the mutual agreement procedure. On. the other hand, although changing taxation measures might be galled in question in the State of residence. only, an exchange of views-as well as of information with, the competent e authority of the ether Contracting State may be tiseful; e.g, to obtain support for a certain interpretation of the Convention, he In paragraph (2) it is laid down that in case’the State | of residence would not be prepared to change its oun. taxation measures; the competent authority of that State shall conmunicate with. the ;coupetent authority of the other State with 2 view to aching an agreement regarding the taxation in dispute. Among fe eases for which the introduction of this procedure’ would ‘be led upon might be mentioned the case where one Contracting ate which in the particular case hes no right to tax under the vention, taxes income not being subject to tax under the laws the other Contracting State, Other examples are the case of ¢ application of non-discrimination clauses and the case of fficulties arising in the allocation of profits among associated enterprises, a,-3- PCAMP14(60)5 Be No time-limit 15 specified in the Article for presenting ims under paragraph (1), Any time-limit that may be fixed upon bilaterally should ‘be reasonably generous, Paragraph (3) 6, The provisions of paragraph (3) invite the competent authorities to resolve general difficulties of interpretation or application by means of special agreements and enable the authori~ ties to enter into such agreements, if possible. It is evident that, due to constitutional obstacles, some States may not be in a position to conclude general agreements of interpretation by using this procedure, . In the second sentence of paragraph (5), a possibility is . Wicated for the competent authorities to deal also with such gases of double taxation which do not come within the scope of the other provisions of the Convention. Of special interest in this connection is the case of a resident of a third State having. Permanent establishments in both Contracting States, It is, of course, desirable that the consultations concerned should result in agreements on the effective elimination of the dovble taxation in question, The Contracting States would be able to make use of the possibility open to them under this provision in so far as no obstacles arise from constitutional reasons, Paragraph (1) 38 This paragraph provides that the conpetent authorities of the Contracting States shall communicate with each other directly. ~ would thus not be necessary to go through diplomatic channels, As suggested by the second sentence of paragraph (4) the setting up of a joint commission may in certain cases be advisable. nen dealing with a particular case, it might be found of value that the taxpayer is heard in writing or orally, If agreed upon unanimously, this procedure should be open to the commission. As the provisions embodied in this Convention as well as @ Commentaries annexed thereto are the result of a close inter~ tional Joint work within the Fiscal Committee, a possibility ar at hand would be to call upon the Fiscal Committee to give opinion on the correct understanding of the provisions where jecial difficulties of interpretation arise es to particular point ich @ practice, which would be in line with the mandate and aims the Fiscal Committee with regard to the progressive elaboration uniform lay for the avoidance of double taxation, would highly ntribute to arriving at @ desirable uniformity in the applicatior the provisions, - In the future when a multilateral Convention may have been reed upon, it might be useful to consider more precise rules on ich an international consultative procedure,