Also known as: mutual agreement procedure · mutual agreement process · MAP
Written by attorneys — see sources below.
A mechanism in tax treaties allowing the competent authorities of the contracting states to resolve disputes over the interpretation or application of the treaty. The procedure enables negotiation to eliminate double taxation arising from inconsistent income allocations between related entities.
Marathon Logistics faces an IRS reallocation of income from its foreign subsidiary under section 482. The foreign tax authority refuses a corresponding adjustment. Marathon invokes the mutual agreement procedures in the treaty so the competent authorities can negotiate a compromise allocation.
Momentum Capital reports an intercompany transaction that triggers conflicting adjustments by the U.S. and foreign revenue authorities. The countries enter mutual agreement procedures but reach no compromise. Momentum therefore faces unrelieved international double taxation on the same income.
The taxpayer may confront international double taxation on the same income.
The procedures provide a formal channel for the competent authorities to reach a compromise on transfer pricing reallocations and other treaty disputes that would otherwise produce unrelieved double taxation.