The OECD’s Tax Certainty Day reassures

The 2024 OECD MAP statistics show continued demand and largely successful resolution, with around 80 percent of TP MAP cases closed providing full relief. MAP availability is spreading among emerging economies too, notably in Latin America, where capacity-building is being pursued. In practice we still observe challenges in accessing MAP in certain jurisdictions and welcome the continued efforts of the OECD and FTA MAP Forum to conduct peer reviews and promote best practices, with plans to release an updated Manual on Effective Mutual Agreement Procedures after stakeholder consultation activity during 2025.

The number of new TP MAP cases was up by 29.1 percent, compared to 8.1 percent for other MAP cases. This is potentially a reflection of increased post-pandemic audit activity during 2022 and 2023 driving up the number of new cases. The number of closed TP MAP cases declined by 5.5 percent, which the OECD see as underscoring the continued importance of the broader tax certainty agenda covering simplification as well as dispute prevention and resolution.

The number of TP MAP cases closed due to withdrawal by the taxpayer has been an area of growing concern in recent statistics, so it was positive to see a drop in this figure from 11 percent in 2023 to 6 percent in 2024. Improving time taken is another area of OECD focus. In our view, focus on improving the speed at which position papers are provided by the adjusting state once the MAP request is submitted would make sense.

The UK is ranked number six worldwide for TP MAP cases started and number five for TP cases closed in 2024. The UK’s success rate of around 90 percent of TP MAP cases providing full relief from double taxation is well above the global average. UK TP MAP cases were closed in just under 26 months on average, comparing favourably with many other jurisdictions with large caseloads. This is especially impressive given 27 of the 95 bilateral full resolution agreements were with Germany - the German TP MAP inventory was reduced by over a third in 2024. The other most productive bilateral engagement was with the United States, with 18 TP MAP cases fully resolved bringing the closing inventory down to only 10 cases. The priorities for 2025 appear to be Spain and France, which between them account for almost a third of all TP MAP cases in the 2024 closing inventory.

Notwithstanding improvements in MAP access and outcomes, there is a strong consensus amongst taxpayers and tax administrations that avoiding disputes before they occur through voluntary compliance is preferable.

In this vein, the 2024 Advance Pricing Agreements (APAs) statistics show that APAs continue to play an important role in dispute prevention. HMRC have received 45 applications in FY24, in line with FY23, and have agreed 27. The time taken to conclude APAs, at 53 months, is however recognised to be longer than desired and something to focus on. Worldwide APA figures were up, reflecting businesses’ appetite for advance certainty.

One of the interesting OECD statistics is the ratio of APAs to TP MAP cases, with high APA ratios dominated by jurisdictions in the Asia-Pacific region. Demand for advance certainty may be higher where confidence in MAP is less (for example due to the absence of mandatory binding arbitration in treaties). That said, dispute prevention is generally a better strategy than dispute resolution in our view.

Japan’s APA programme is clearly successful, with the largest opening inventory worldwide (562 cases), 25 percent of that figure closed during the year, and a favourable case duration of 33 months. At almost five times the number of new MAP cases, the appeal of APAs to multinationals operating in Japan is clear.

Other tools to prevent disputes, such as the International Compliance Assurance Programme (ICAP), were promoted during the OECD’s presentations, with generally positive experiences from those businesses that had participated highlighted, and scope recognised for wider participation from both businesses and tax authorities.

Tax Certainty Day recognised that tax authority scrutiny of transfer pricing will continue and the importance of efficiently preventing double taxation remains. The OECD FTA MAP Forum continues to pursue continual improvement in this regard, and we expect progress in terms of the availability of certainty processes globally and their efficiency.

Whilst the OECD Tax Certainty Day rightly celebrated tax administrations’ successes and improvements in dispute prevention and resolution, there is always room for improvement on all sides. Continued focus by multinationals on implementing operational transfer pricing best practices and reinvesting AI related efficiency gains in improving the quality of TP documentation and seeking opportunities for early engagement with tax authorities can pay dividends.

Reinforcing the value of avoiding a dispute occurring in the first place, our article on HMRC’s revised TP settlement strategy explains that if a UK TP adjustment is made in an audit it is likely to be to the median of the arm’s length range. With counterparties often adopting a similar approach, UK taxpayers now have clearer boundaries to work with when managing UK TP.

For further information please contact:

• Phil Roper
• Nick Stevart