Also known as: mutual agreement procedures · mutual agreement procedure (MAP) · MAP
Written by attorneys · grounded in primary & secondary sources — see below
A procedure in bilateral tax treaties that allows the competent authorities of the contracting states to resolve disputes concerning the interpretation or application of the treaty, including cases of double taxation.
TechCo, a U.S. corporation, pays royalties to its German parent. The IRS withholds tax at 30 percent while Germany taxes the same income. TechCo requests competent-authority relief, and the U.S. and German authorities use the mutual agreement procedure to reduce the U.S. withholding rate and eliminate double taxation.
GlobalBank operates a branch in Canada. Canadian authorities attribute 60 percent of branch profits to Canada, while the U.S. attributes only 30 percent. GlobalBank invokes the mutual agreement procedure. The competent authorities negotiate a 45 percent allocation and corresponding relief from double taxation.
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The procedure enables the competent authorities of treaty partners to negotiate resolutions to specific cases where a taxpayer alleges that treaty provisions have been violated, including by modifying domestic law outcomes to relieve double taxation.
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U.S. income tax treaties typically include a mutual agreement procedure article modeled on the U.S. Model Treaty Article 25, though the precise scope and enforcement mechanisms can vary by treaty.
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A unilateral APA binds the taxpayer and the IRS but does not prevent a foreign tax authority from taking a different position, and it may preclude competent authority consideration under the mutual agreement procedure.
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