S.Africa: Why the new MAP explanations of SARS are wrong!

What follows is the SARS version. The correct explanation appears below:

 

MUTUAL AGREEMENT PROCEDURE (MAP)

What is a MAP?

MAP is a procedure which allows the Competent Authorities or designated representatives of the Competent Authorities from the governments of the Contracting States/Parties to interact with the intent to resolve international tax disputes.

MAP is provided for in an Article in a Double Taxation Agreement (DTA) and can involve matters containing juridical double taxation cases, as well as inconsistencies in the interpretation or application of a DTA.

What is a Competent Authority?

DTAs are usually concluded between the governments of two countries. These countries are then referred to as the Contracting States or Contracting Parties to such an agreement.

“Competent Authority” is a term used in tax conventions or agreements to identify a position, a person or a body to whom issues can be addressed within a Contracting State.

The Competent Authority in South Africa is the Commissioner for SARS and duties have been delegated to designated representatives in the Legislative Research & Development Subdivision within Legal & Policy.

What is the function of a Competent Authority?

The Competent Authority in a Contracting State/Party is charged with the responsibility to interact with its counterparts in any matters arising between the different Contracting States/Parties pertaining to the interpretation or the application of a DTA, and to resolve any international tax disputes that might arise.

A Competent Authority is generally committed to ensure a good faith application of a DTA. The Competent Authority endeavours to resolve requests from their counterparts in accordance with a particular DTA.

How does it work?

The DTA permits a mutual agreement procedure (MAP) for resolving difficulties arising from the application of a DTA in the broadest sense of the term.

It basically authorises the Competent Authorities or their designated representatives to communicate with each other directly, including through joint commissions, for the purpose of resolving the matters that might be brought before them.

A MAP Request for Assistance may deal with any of the following subjects:

  • Transfer pricing adjustment requests
  • Attribution of profits of a permanent establishment
  • Dual residence of individuals and persons other than individuals
  • Withholding tax levied beyond what is permitted by the applicable DTA
  • Any other case in which a person considers that the taxation is not in accordance with the applicable DTA

Depending on the relevant subject, the MAP request will be routed into one of two channels, i.e.-

  • Transfer Pricing MAP
    or
  • Interpretation MAP

 

MAP Request for Assistance

It is a request from one Competent Authority of a particular DTA’s Contracting State/Party, to the Competent Authority of the other Contracting State/Party, under a particular DTA, to resolve any international tax dispute.

Step 1

In cases where the taxation which is not in accordance with the DTA has been imposed, the taxpayer must first raise the issue with the relevant State as agreement by the other State will negate the need for a MAP.

Read all about the South African procedures here:

 

Step 2

If unsuccessful, the taxpayer may then approach the Competent Authority of his/her country of residence to request a MAP under the relevant DTA.

If the Competent Authority in the country of residence cannot itself resolve the matter, but is in agreement with the taxpayer’s request for a MAP, the Competent Authority will take up the matter with the Competent Authority of the other Contracting State/Party under the specific DTA.

 

What to submit & Where to submit it

SARS, as the Competent Authority, requires certain minimum information to be included in a MAP Request, whether it is for a Transfer Pricing MAP Request or an Interpretation MAP Request.

The types of MAP Requests, the minimum information required per type, and the relevant email address to be used per type, are set out in the table below.

 

​Types of
MAP Requests
​Minimum Information Requirements ​Email Address
Transfer Pricing MAP Requests, including-

  • Attribution of profits of a permanent establishment

Interpretation MAP Requests, including –

  • Dual residence of individuals and persons other than individuals
  • Withholding tax levied beyond what is permitted by the applicable DTA
  • Any other case in which a person considers that the taxation is not in accordance with the applicable DTA

 

 

 

 

 

Important Notes​
  • ​MAP Requests should only be submitted to SARS after the South African resident taxpayer has, where applicable, first approached the foreign revenue authority to make that revenue authority aware that, in that taxpayer’s view, tax which is not in accordance with the provisions of the relevant DTA, has been levied by the foreign revenue authority
  • If the matter cannot be resolved through that approach, then the South African resident taxpayer can approach the Competent Authority at SARS for assistance
  • MAP Requests should contain all the minimum requirements stipulated for each type, and should be submitted to the correct email address to ensure that they reach the correct section

 

Here is the correct explanation:

Uganda/RSA DTA for instance:

1. Where a person 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, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 24, to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the  Convention.

OECD Commentary on A25:

14. It should be noted that the mutual agreement procedure, unlike the disputed

claims procedure under domestic law, can be set in motion by a taxpayer without

waiting until the taxation considered by him to be “not in accordance with the

Convention” has been charged against or notified to him. To be able to set the

procedure in motion, he must, and it is sufficient if he does, establish that the “actions

of one or both of the Contracting States” will result in such taxation, and that this

taxation appears as a risk which is not merely possible but probable. Such actions

mean all acts or decisions, whether of a legislative or a regulatory nature, and whether

of general or individual application, having as their direct and necessary consequence

the charging of tax against the complainant contrary to the provisions of the

Convention. Thus, for example, if a change to a Contracting State’s tax law would result

in a person deriving a particular type of income being subjected to taxation not in

accordance with the Convention, that person could set the mutual agreement

procedure in motion as soon as the law has been amended and that person has derived

the relevant income or it becomes probable that the person will derive that income.

Other examples include filing a return in a self assessment system or the active

examination of a specific taxpayer reporting position in the course of an audit, to the

extent that either event creates the probability of taxation not in accordance with the

Convention (e.g. where the self assessment reporting position the taxpayer is required

to take under a Contracting State’s domestic law would, if proposed by that State as an

assessment in a non-self assessment regime, give rise to the probability of taxation not

in accordance with the Convention, or where circumstances such as a Contracting

State’s published positions or its audit practice create a significant likelihood that the

active examination of a specific reporting position such as the taxpayer’s will lead to

proposed assessments that would give rise to the probability of taxation not in

accordance with the Convention). Another example might be a case where a

Contracting State’s transfer pricing law requires a taxpayer to report taxable income in

an amount greater than would result from the actual prices used by the taxpayer in its

transactions with a related party, in order to comply with the arm’s length principle,

and where there is substantial doubt whether the taxpayer’s related party will be able

to obtain a corresponding adjustment in the other Contracting State in the absence of

a mutual agreement procedure. As indicated by the opening words of paragraph 1,

whether or not the actions of one or both of the Contracting States will result in

taxation not in accordance with the Convention must be determined from the

perspective of the taxpayer. Whilst the taxpayer’s belief that there will be such taxation

must be reasonable and must be based on facts that can be established, the tax

authorities should not refuse to consider a request under paragraph 1 

 

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