1. The MAP positions
The table below shows the respective position of India and the United Kingdom on article 16(1) and article 35(4) as per extracts from the database of the OECD Depositary as of 26th November 2020.1
| MLI article | Article 16(1) allows a person to present its MAP case to the competent authority of either contracting jurisdiction. Article 16(5)(a) provides that a contracting jurisdiction may reserve its right for the first sentence of article 16(1) not to apply to its CTAs. | Article 35(6) allows a contracting jurisdiction to make reservation for taxpayer to have access to MAP on and after 1 Oct 2019 (the entry-into-force date) under article 35(4) |
| Article 16(5)(a) | Article 35(6) | |
| India | Yes | No |
| United Kingdom | No | No |
The United Kingdom has adopted Article 16(1) of the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (the Multilateral Instrument or the MLI) without reserving its right under Article 16(5)(a) of the MLI while India has reserved its right under Article 16(5)(a) for article 16(1) not to apply, which provides that a taxpayer is permitted to present its MAP case to the competent authority of either contracting jurisdiction. Therefore, the alternative rule shall apply in accordance with paragraph 3 of article 28 - Reservation. 2
Both India and the United Kingdom do not reserve their right under article 35(6) for article 35(4) which provides that the parties shall adopt the entry-into-force date as the entry-into-effect date for taxpayer that requests for a mutual agreement procedure under article 16(1).
2. The legal texts of article 35(4) reads:
4. Notwithstanding the preceding provisions of this Article, Article 16 (Mutual Agreement Procedure) shall have effect with respect to a Covered Tax Agreement for a case presented to the competent authority of a Contracting Jurisdiction on or after the latest of the dates on which this Convention enters into force for each of the Contracting Jurisdictions to the Covered Tax Agreement, except for cases that were not eligible to be presented as of that date under the Covered Tax Agreement prior to its modification by the Convention, without regard to the taxable period to which the case relates.
The synthesized text of Article 35(4) and the India-UK CTA reads as follows: 3
| "In accordance with paragraph 4 of Article 35 of the MLI, Article 16 of the MLI has effect with respect to this Convention for a case presented to the competent authority of either contracting jurisdiction a Contracting State of which he is a resident (per article 16(5)(a)) on or after 1 October 2019 [the latest of the dates on which the MLI comes into force, per article 35(4)], except for cases that were not eligible to be presented as of that date under this Convention prior to its modification by the MLI, without regard to the taxable period to which the case relates." |
3. The alternative rule for article 16(1)
The first sentence of article 16(1) of the MLI reads:
"[w]here a person considers that the actions of one or both of the Contracting Jurisdictions result or will result for that person in taxation not in accordance with the provisions of the Covered Tax Agreement, that person may, irrespective of the remedies provided by the domestic law of those Contracting Jurisdictions, present the case to the competent authority of either Contracting Jurisdiction." [Emphasis added]
For many years, the CTAs concluded on the basis of the 2014 or earlier versions of the OECD Model Tax Convention do not permit a person to present his MAP request to the CA of either contracting jurisdiction. Article 27(1) of the India-United Kingdom double tax agreement is a case in point, which reads:
Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State, of which he is a resident.
As noted, the provision of article 27 of the India-United Kingdom DTA is at odds with the 2017 version of the Mutual Agreement Procedure article of the OECD Model Convention that incorporates the objective of the OECD/G20 BEPS measures to implement the minimum standards "improving dispute resolution".
To allow flexibility and satisfy the minimum standard requirement, article 16(5)(a) of the MLI permits a Party to reserve its right not to apply the first sentence of Article 16(1) to its CTAs by adopting the alternative rules for the first sentence of Article 16(1). Article 16(5)(a) reads:
"A Party can only opt out of the first sentence in Article 16(1) on the basis that
- it intends to meet the minimum standard for improving dispute resolution under the OECD/G20 BEPS Package by ensuring that under each of its Covered Tax Agreements (other than a Covered Tax Agreement that permits a person to present a case to the competent authority of either Contracting Jurisdiction), where a person considers that the actions of one or both of the Contracting Jurisdictions result or will result for that person in taxation not in accordance with the provisions of the Covered Tax Agreement, irrespective of the remedies provided by the domestic law of those Contracting Jurisdictions, that person may present the case to the competent authority (the CA) of the Contracting Jurisdiction of which the person is a resident or, if the case presented by that person comes under a provision of a Covered Tax Agreement relating to non-discrimination based on nationality, to that of the Contracting Jurisdiction of which that person is a national; and
- the competent authority of that Contracting Jurisdiction will implement a bilateral notification or consultation process with the competent authority of the other Contracting Jurisdiction for cases in which the competent authority to which the mutual agreement procedure case was presented does not consider the taxpayer's objection to be justified."
4. Conclusion
Because a person is not given the access to present a MAP case to the CA of either contracting jurisdiction, paragraph 5(a)(ii) of the Article 16 introduces an administrative remedy that the CA of a contracting jurisdiction shall implement a bilateral notification or consultation process with the CA of the other contracting jurisdiction in the situation that the person is only allowed to present the MAP case to the competent authority of the contracting jurisdiction of which that person is the resident.
Footnotes
1. http://www.oecd.org/tax/treaties/beps-mli-position-india-instrument-deposit.pdf
2. Paragraph 3 of article 28 (Reservations) of the MLI replicates Articles 21(1)(a) and (b) of the Vienna Convention on the Law of Treaties (1969). Article 28(3) reads:
"Unless explicitly provided otherwise in the relevant provisions of this Convention [the MLI], a reservation made in accordance with paragraph 1 or 2 (of Article 28) shall:
a) Modify for the reserving party in its relations with another party the provisions of this Convention to which the reservation relates and to the extent of such reservation; and
b) Modify those provisions to the same extent for the other Party in its relations with the reserving Party."
Article 28(3) contains two principles. First, unless explicitly provided otherwise, a reservation made on a unilateral basis will not only have effect on the CTA between the reserving party and the other party, but also have effect on other CTAs that the reserving party has nominated in accordance with either paragraph (1)(a) of article 2 (Interpretation of Terms) on the day when it deposited the Instrument of Ratification or paragraph 5 of article 29 (Notifications) after it has ratified the MLI. The main exception to this rule is that a reservation to apply the arbitration articles under Part VI of the MLI requires acceptance under article 28, paragraph 2 of the MLI. Second, unless explicitly provided otherwise, a reservation is reciprocal between the Parties to the MLI with respect to the application of an Article or a provision of the Article of the MLI to existing CTAs. That is, it does not work only one way, but works both ways. In general, a reservation shall apply symmetrically.
3. https://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx
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