An effective dispute resolution mechanism should be an important part of a well functioning international tax system. We support the aim that disputes should be resolved in a `principled, fair and objective manner’, but suggest that the implications of these important criteria should be spelled out in more detail in the Commentary, as follows:
- principled: this requires that outcomes should take the form of reasoned decisions, based on analysis of the facts of the case, the applicable rules and how they have been interpreted and applied to the specific case;
- fair: like cases should be treated alike, and decisions should be published, to ensure consistency;
- objective: decision-makers should be independent of the disputing parties and have no vested interests or conflicts of interest; and rules to be applied should be formulated so as to be easily applicable to specific cases based as far as possible on their facts rather than requiring value-judgments.
The existing Mutual Agreement Procedure (MAP) in tax treaties is far from this standard, as at present it entails agreements in secret among tax authority representatives and multinationals’ tax advisers. Transparency, including publication of decisions, is key to principled, fair and objective decisions. Also, the rules themselves should be capable of being applied consistently and objectively, rather than leaving wide scope for interpretation. Until states and companies are willing to accept these procedural safeguards it is ineffective and pointless to require paper commitments to objectivity. Instead of seeking incremental steps towards an unstated objective, there should be a wide public debate about the objectives and desirable structures.
Strengthening of the MAP procedure would be a mistaken response to the understandable concerns that the BEPS reforms will take the international tax system into unchartered waters. Instead, the G20 should consider a transition mechanism, to supervise the process of implementation of the BEPS reforms, monitor the way the rules are introduced by states, and provide advice and perhaps even interpretations. The expansion of OECD Working Parties to include other G20 members, and now also some developing countries, provides only a temporary and rather unsatisfactory remedy to the institutional gap caused by the lack of an adequate international tax organisation. This question should be addressed through the only legitimate worldwide organisation, the United Nations, in the context of the forthcoming conference in Addis Ababa on Financing for Development.