Over the last decade, changes to EU and international tax laws have created greater levels of transparency with respect to the tax affairs of corporate taxpayers. This has created an active international tax dispute landscape for MNEs. Amid this backdrop, international measures are being introduced to further enhance cooperation between international tax authorities.
EU Directive 2021/514 ("DAC7") created a framework for joint audits and was partly transposed into Irish law in Finance Act 2022. On the dispute resolution front, the latest guidance from the OECD on multilateral mutual agreement procedures ("MAPs") and advance pricing agreements ("APAs") signals that multilateral dispute resolution and tax certainty has become a priority. The introduction of a global minimum tax in the EU in 2024 and the possible introduction of Pillar One measures further emphasises the need for an effective dispute resolution framework.
Joint audits
DAC7 principally focussed on reporting rules for digital platforms, however, it also introduced a joint audit legal framework which must be operational in member states from 2024. Joint audits have been relatively uncommon in Ireland, which is, in part, due to uncertainty around the legal framework for tax authorities to conduct audits jointly.
The DAC7 joint audit framework was partially transposed by Finance Act 2022, which introduced a new section 891K to the Taxes Consolidation Act, 1997 ("TCA"). The new section 891K TCA lays the groundwork for joint audits by providing that a foreign tax official can be present or participate in an administrative enquiry being carried out in Ireland. Importantly, section 891K TCA does not address the specific provisions of DAC7 regarding the conduct of joint audits (which are covered by Article 12a of DAC7). Revenue have indicated that the outstanding transposition of DAC7 as it applies to joint audits is expected to be transposed in Finance Bill 2023. The interaction with the Code of Practice for Revenue Compliance Interventions and the Co-Operative Compliance Framework will also need to be considered.
Multilateral dispute resolution and tax certainty
In February 2023, the OECD published a Manual on the Handling of Multilateral MAPs and APAs (the "MoMA"). The MoMA is a 'guide' to multilateral MAP and APA processes from both a legal and procedural perspective. It does not impose a set of binding rules, but seeks to instead complement the existing framework for MAPs and APAs based on tax treaty rights and existing OECD guidance.
The MoMA encourages tax administrations to consider whether the implementation of multilateral procedures can be incorporated into domestic guidance on MAP or APA processes. Absent a practical multilateral framework, MNEs are faced with entering into costly and time consuming back-to-back processes to achieve certainty and tax relief.
Under the existing Irish MAP and APA framework, the Irish Competent Authority is willing to consider entering into a series of bilateral MAPs and APAs as a way of dealing with multilateral situations where issues involve two or more tax jurisdictions. Based on our experience (and OECD statistics - see our recent update here), there has been a significant increase in both MAPs and APAs in Ireland in recent years, many of which involve multiple jurisdictions.
Key Takeaways
- The transposition of DAC7 in Ireland and across EU member states will likely lead to Ireland engaging in joint audits in future years, particularly in the context of transfer pricing audits.
- The OECD's recent MoMa guide provides a welcome roadmap to further enhance cooperation and certainty for taxpayers considering MAPs and APAs.