Thursday, October 12, 2017
The OECD has found that Switzerland is mostly compliant with the BEPS minimum standard on improving tax dispute resolution, but needs to amend its rules on the time limits available for the filing of MAP requests.
Under Action 14 of the BEPS project, countries have committed to implement a minimum standard to strengthen the effectiveness of the Mutual Agreement Procedure (MAP). The MAP is included in Article 25 of the OECD Model Tax Convention and commits countries to endeavour to resolve disputes related to the interpretation and application of tax treaties.
The peer review process is conducted in two stages. Stage 1 assesses countries against the terms of reference of the minimum standards. Stage 2 focuses on monitoring the implementation of any recommendations that resulted from Stage 1.
The OECD observed that Switzerland has a large tax treaty network, consisting of 90 agreements. It said that Switzerland "has an established MAP program and has extensive experience with resolving MAP cases." The country had almost 350 cases pending on December 31, 2016, with approximately 40 percent of this number consisting of attribution/allocation cases.
The OECD noted that all of Switzerland's tax treaties include a provision relating to MAP, which generally follow Article 35 of the Model Tax Convention.
The peer review concluded that Switzerland meets the minimum standard on the prevention of disputes, and provides access to MAP in all eligible cases. It said that Switzerland has a notification process in place for situations in which the authorities deem the objection raised by taxpayers in a MAP request as not justified.
The peer review found that the Swiss authorities use a pragmatic approach to resolving MAP cases in an effective and efficient manner, and that its organization is adequate. However, more resources may need to be dedicated to achieving a reduction in the number of MAP cases outstanding. The average time to resolve cases is 22.05 months – which is below the 24-month maximum required to meet the minimum standard – but the average time necessary to resolve attribution/allocation was significantly longer (27.42 months).
More substantially, the OECD found that more than half of Switzerland's tax treaties neither provide that mutual agreements shall be implemented notwithstanding any time limits in domestic law, nor include alternative provisions to set a time limit for making transfer pricing adjustments. More than a quarter of Switzerland's treaties do not contain a provision for the implementation of mutual agreements notwithstanding domestic time limits and include only the alternative provisions for transfer pricing adjustments.
Switzerland recently signed the Multilateral Instrument for the implementation of treaty-BEPS measures, which potentially covers 14 of its tax treaties. Regarding the implementation of MAP agreements, Switzerland intends to include the alternatives provided for under the Model Tax Convention, and will amend and update its treaties via bilateral negotiations. These alternatives regulate the time limits set for making transfer pricing adjustments.
The OECD also said that Switzerland needs to issue more comprehensive MAP guidance.