Understanding Mutual Agreement Procedure

https://epajak.or.id/ Understanding Mutual Agreement Procedure (MAP), A Solution for International Tax Disputes

What is the Mutual Agreement Procedure (MAP)?
The Mutual Agreement Procedure (MAP) is an administrative mechanism established under international tax treaties to resolve cross-border tax disputes. The primary objectives of MAP include:

1. Preventing Double Taxation: Addressing instances of double taxation arising from differing interpretations or adjustments in transfer pricing between countries.
2. Ensuring Fair Tax Treatment: Protecting taxpayers from discriminatory tax practices in foreign jurisdictions.
3. Effective Dispute Resolution: Facilitating bilateral discussions between competent tax authorities to achieve equitable solutions in compliance with tax treaty provisions.
4. Providing Certainty in International Business: Offering legal certainty to taxpayers engaged in cross-border activities.

Indonesia’s Commitment to MAP
Indonesia, through its Directorate General of Taxes (DGT), has adopted the MAP mechanism to enhance the efficiency and effectiveness of tax dispute resolution. This aligns with Indonesia’s commitment to international standards outlined in the Base Erosion and Profit Shifting (BEPS) project, specifically Action 14: “Making Dispute Resolution Mechanisms More Effective.”

read also

• PNBP Reform at the Ministry of Law and Human Rights
• Understanding Mutual Agreement Procedure
• Effects of Luxury Goods VAT Increase on Capital Market Transactions
• PMSE VAT
• Adjustment of Tax Rates in Capital Market

Who Can Apply for MAP?
MAP is accessible to various parties, depending on the nature of the tax issue:

1. Domestic Taxpayers in Indonesia: For instance, Indonesian companies facing double taxation due to transfer pricing adjustments.
2. Indonesian Citizens Abroad: Cases involving discriminatory tax treatment in a partner country.
3. The Directorate General of Taxes (DGT): To prevent double taxation or address bilateral advance pricing agreement (BAPA) concerns.
4. Competent Authorities of Partner Countries: To resolve disputes involving Indonesian taxpayers.

Issues Addressed Through MAP
MAP can be utilized to resolve several types of tax issues, including:

1. Transfer Pricing Adjustments: Cases where a partner country imposes adjustments that result in double taxation.
2. Tax Discrimination: Instances where Indonesian citizens or companies are subjected to unfair tax treatment in foreign jurisdictions.
3. Interpretation of Tax Treaties: Differences in understanding specific provisions of a tax treaty.
4. Dual Residency Issues: Conflicts arising from taxpayers being recognized as residents by more than one country.

The MAP Application Process
To apply for MAP, taxpayers must meet the following requirements:

1. Written Application in Indonesian: The application must detail the taxation action deemed inconsistent with the tax treaty.
2. Supporting Documentation: Including a certificate of domicile, relevant tax evidence, and a declaration of willingness to provide complete information.
3. Submission Deadline: If not explicitly stated in the tax treaty, MAP must be filed within three years from the occurrence of the taxation event.

Upon receiving an application, the DGT will assess the completeness of the documentation and materials submitted. If deemed eligible, the DGT will engage in bilateral discussions with the tax authority of the partner country. These discussions typically take up to 24 months.

Outcomes and Implementation of MAP
MAP discussions may result in:

1. Agreement: If both parties reach a mutually acceptable solution.
2. Disagreement: If no resolution is achieved within the stipulated timeframe.

In cases of agreement, the DGT will follow up with actions such as recalculating taxes, canceling tax bills, or refunding taxes already paid. Should no agreement be reached, taxpayers may pursue domestic remedies, such as objections or appeals.

Indonesia’s Position on MAP Arbitration
Currently, Indonesia does not adopt mandatory arbitration in its MAP process, except in the tax treaty with Mexico. This reflects Indonesia’s preference for resolving disputes through bilateral discussions rather than arbitration.

Conclusion
The Mutual Agreement Procedure (MAP) offers an effective avenue for resolving international tax disputes. This mechanism not only prevents double taxation but also safeguards taxpayers from unfair treatment in partner countries.

By understanding the procedure and benefits of MAP, taxpayers can leverage this mechanism to ensure their tax rights are protected. Further information on MAP is available on the DGT’s official website at www.pajak.go.id.