OECD’s ICAP pilot: seeking an end to double taxation and international tax disputes for multinationals
BEPS (Base Erosion and Profit Sharing) is an initiative to fundamentally redefine the rules of international taxation. Its 15 ambitious projects share a common purpose, namely not to create new double taxation situations but instead, pursue research to improve the consistency and coordination of cross-border tax risk assessments for businesses. The OECD, with the support of the Forum on Tax Administration, is working to help improve tax cooperation between fiscal authorities and above all, avoid the legal complications that can arise from situations of international double taxation for businesses.
To achieve this, the OECD is currently trying to promote a pilot known as ICAP (International Compliance Assurance Programme), a voluntary partnership between transnational businesses and tax authorities.
A tool to combat the problems of double taxation and international tax dispute procedures
ICAP is a voluntary programme designed to create a risk assessment and quality assurance process, which is both multilateral and based on cooperation, between multinational businesses and the tax authorities in the countries in which they operate. By coordinating the conversations between multinational groups (MNEs) and several tax administrations, ICAP encourages the efficient use of documentation on transfer pricing, including the multinational’s country-by-country reporting, offering a faster, clearer and more efficient way of improving cooperation and integrating international tax issues from a multilateral perspective. In the future, ICAP should reduce constraints for both multinationals and the tax authorities, and reduce the number of disputes that need to be resolved through amicable resolution procedures, which are often very onerous for both parties.
ICAP is not only a tool to improve legal certainty for multinationals but also a way of saving resources and improving the analysis of the information gathered, particularly in the context of country-by-country reporting. The OECD is seeking to make the initiative a win-win exercise for both businesses and the tax authorities.
Avoiding international tax disputes – How does ICAP work?
ICAP is a multi-stage process:
- Pre-entry: in broad terms, the process consists of the parent company of a transnational group approaching the authorities in its head office location, although it is possible for an authority other than the one for the head office location to be appointed to act as coordinator. The cases in the initial pilot involved between four and eight different countries. The countries concerned need to be able to exchange the necessary information, based on the administrative assistance provided under bilateral tax conventions or multilateral agreements.
- Scoping: initially, the business explains its situation and the reasons why it wishes to take part in the programme; it must then provide a number of pieces of information to further the scope of the investigations expected. This second phase results in an agreement between the authorities concerned on the scope of the issues to be covered by the analyses carried out by the tax administrations.
- Risk assessment and issue resolution: the risks concerned are mainly related to transfer pricing. However, there can also be problems around permanent establishment or any other cross-border risks. The period covered (after 2015) must also be defined, since in principle, the analysis should be able to apply to the two financial years following those covered by it.
- Outcomes: the final phase, which produces the outcomes and issues a certificate of assurance, is the risk-assessment stage, or in other words, the examination by the tax authorities. At the end of the process, the business receives a letter from each of the administrations, in which they express their position on the issues covered; the various responses must, of course, be coordinated between the authorities concerned.
ICAP is still at a pilot stage. It is, without doubt, a necessary prerequisite to the post-BEPS world, to reassure businesses faced with a complete overhaul of the rules and an explosion in their reporting obligations. There is therefore some justification for explaining the programme to transnational businesses that have to comply with some very stringent fiscal rules from a procedural perspective.
No Swiss participation in ICAP pilot project for the time being
Switzerland is not currently taking part in ICAP. Instead, it has opted for a wait-and-see approach and to monitor closely how the programme develops next. It would therefore be sensible for taxpayers in Switzerland to keep a close watch on the future development of a tool that is helping to strengthen the international fiscal system using new technologies, analysis tools and data, with the aim of reducing administrative costs, creating efficiencies and improving services to taxpayers.
Article written by Nathalie Pellanda Gaud and Jean Gafan
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