Mutual agreement procedures (MAPs) can be used by taxpayers if they end up in a situation of double taxation due to a transfer pricing correction made by a tax authority.
A tax ruling is an agreement with a tax authority on how to interpret tax legislation for the relevant facts and circumstances of a specific taxpayer. The tax ruling provides certainty to the tax payer (and tax authority) that no correction will be made on the topic for which the ruling is obtained.
Common tax rulings that relate to Transfer Pricing are:
- Advance Pricing Agreements (APAs);
- Agreement on the transfer pricing policy for a taxpayer, usually for the upcoming 3 or 5 years.
- APAs can also be obtained with two tax authorities (Bilateral APA or BAPA) or multiple tax authorities (Multilateral APA or MAPA).
- Innovation Box Rulings;
- Ruling that relates to an agreement on how much profit of the taxpayer can be attributed to innovation and is taxed at a lower tax rate.
- Mutual Agreement Procedures (MAP) could be considered in the same category.
- If a transfer pricing correction is made you usually have the possibility to request a MAP. The goal of the MAP is that the tax authorities of the taxpayers to which the correction relates will discuss with each other to determine the arm’s length price of the transaction that has been corrected.
The benefits of a tax ruling
- Can be supportive towards foreign tax authorities as a ‘quality stamp’ that another well-respected tax authority has for example approved your Transfer Pricing policy. This will reduce the chance that they start an audit or make a correction.
- Provides more comfort internally, to investors and auditors.
- For the innovation box ruling, this will make it (more) possible to apply the innovation box which reduces your tax costs and increases a (potential) valuation.
- Reduces the risk of double taxation and corrections
We are working on tax rulings that relate to Transfer Pricing on a weekly basis and were for example selected by the European Union to support two European tax authorities in improving their APA processes. In addition, our former heads of the Dutch APA team know the ins and outs of these matters, have shared this knowledge internally and can support you as well.