Several Issues regarding the Mutual Agreement Procedures

Author Name ITO Tsuyoshi  (Nishimura & Asahi)
Creation Date/NO. October 2010 10-J-053
Research Project Trade Agreements and Tax Systems
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Mutual agreement procedures refer to an international tax dispute resolution mechanism, in which tax authorities of countries party to bilateral tax conventions (or treaties) negotiate. In recent years, the importance of the mutual agreement procedures has been growing, as the number of cases in which taxpayers request that their governments initiate mutual agreement procedures has been increasing. The reasons behind this are an increase in international trade, an enhancement of tax enforcement by many countries against international trade, and other similar factors. There are still many unclear points with respect to the relationship between the mutual agreement procedures and domestic tax laws. Recently, the model tax convention of the Organization for Economic Co-operation and Development (OECD) was amended, whereby, as an extension of the mutual agreement procedure, it stipulated a clause on final resolution mechanisms through arbitration. The new tax convention signed between Japan and the Netherlands in August 2010 includes an arbitration mechanism. This is the first time that a clause providing for arbitration has been stipulated in a tax convention signed by Japan.

This document discusses issues related to the mutual agreement procedures, including the relationship between mutual agreement procedures and tax assessment as donations, the persons entitled to apply for mutual agreement procedures, the relationship between mutual agreement procedures and domestic remedial procedures, and other issues. This document further discusses issues related to arbitration mechanisms that are stipulated as an extension of mutual agreement procedures in a tax convention, and related domestic Japanese tax laws.