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Competent Authority
KYOTO, Japan-Tax authorities should discuss whether publishing the outcomes of transfer pricing arbitrations would help resolve future double tax cases, practitioners attending the Sept. 29-Oct. 5 annual meeting of the International Fiscal Association in Kyoto suggested.
IFA participants embraced arbitrations, advance pricing agreements, and other alternative forms of dispute resolution to cope with increasing dispute inventories-clearly expecting unresolved transfer pricing cases to surge when Brazil, China, India, and other new entrants to the global market economy begin adjusting multinational companies' transfer prices.
David Tillinghast of Baker & McKenzie in New York, who chaired the IFA session on tax treaty dispute resolution mechanisms, said alternative settlement mechanisms are important to speed settlement of individual cases and gradually could help establish accepted principles in interpreting treaties.
In Europe, some 500 disputed cases are undergoing mutual agreement procedure (MAP) negotiations between nations, and 90 of those are more than two years old, which makes them eligible for settlement under the European Union Transfer Pricing Arbitration Convention, Michael Wichmann, deputy head of the German Finance Ministry's Tax Treaty Policy Division, pointed out.
Disputes are becoming more intractable, he said, because multinational companies are increasingly diversifying corporate structures, thus making it much harder for competent authorities to mutually agree on acceptable arm's-length prices.
Arbitration Guidelines. Tillinghast said arbitration is gaining "some momentum" and detailed several procedures available now or soon to be available for cases more than two years old:
* The EU Arbitration Convention, under which at least two cases have progressed to the arbitration stage: one, in which the taxpayer is unknown, involved France and Germany, and the other, in which the taxpayers were affiliates of Stockholm-based Electrolux, involved France and Italy (12 Transfer Pricing Report 320, 8/20/03; 13 Transfer Pricing Report 473, 9/15/04).
* The OECD arbitration position, set forth in a January report adopted by the Committee on Fiscal Affairs, calls for cases unresolved by competent authorities after two years to be heard by a three-person panel of arbitrators, who would have six months to issue a binding decision unless the two competent...