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MAP Resolution was Considered a Binding Settlement

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PwC-skatteradgivning-board-governance.pngThe Tax Court in Canada has recently appointed a Mutual Agreement Procedure (“MAP”) resolution between two competent authorities, to be a binding settlement prevailing later decisions from a national tax authority on the same issue.

In case a person or a company have been subject to double taxation on the same income in two countries, a MAP between the two states can be initiated. The MAP institute exists in most double taxation agreements and is regulated in Article 25 in the OECD Model Tax Convention and in the EU arbitration convention.

In 2006, a Canadian company (“the taxpayer”) made a voluntary disclosure to the Canadian Tax Authorities (CTA) due to the discovery of unreported revenues from a related party in the United States (“the related party”). The adjustments accordingly conducted by the CTA resulted in economic double taxation. After some correspondence between the competent authorities in Canada and the United States, the competent authority in the United States agreed to make the corresponding adjustment to the related party. The parties accepted the agreement in the respective countries and double taxation was eliminated. However, the CTA decided to audit the taxpayer on the same transactions addressed in the MAP arguing that the Transfer Pricing method used by the taxpayer was not appropriate, and made second adjustments accordingly. The case was brought to the Tax Court in Canada and on the 10 March 2017, the Court ruled that the MAP resolution between the two competent authorities constituted a binding settlement prevailing the audit decision by the CTA.

Conclusively, the main questions were (i) whether a binding agreement had been reached between the taxpayer and the CTA, and (ii) whether the mutual agreement accepted by the taxpayer had determined the transfer price between the related parties.

The Court emphasized the wording of the correspondence between the competent authorities and concluded that a binding agreement had been reached. In matters of the second and key issue of case, the Court held that the adjustments agreed under the MAP resolution reflected the transfer price to be applicable between the related parties. Hence, the CTA’s view that the adjustments agreed were not in accordance with the arm’s length principle, did not change the fact that a binding settlement had been reached and that the adjustments reflect the transfer price that should be applied. Here, the Court also referred to international contractual principles stating that the Tax Convention prevails domestic legislation. The ruling supports the view that MAP resolutions concluded between two competent authorities are to be considered as binding settlements restricting national tax authorities to conduct other legal instruments (e.g. tax audits) conflicting the resolution. Furthermore, the rule of law and the legal foreseeability when involving MAP’s are, by the results of this ruling, strengthened.


The ruling from the Tax Court in Canada showcases an important fact. Similar to what is stated in the case, specific international tax legislation, such as double tax agreements, triumphs domestic tax rules in most countries, including Sweden. For example, even a Supreme Administrative Court decision can be overruled or amended by a MAP agreement between Sweden and a foreign country.

Furthermore, apart from Article 25 in Tax Conventions, Sweden has entered into a number of agreements with other countries solely regulating MAP’s and around 100 MAP cases are annually filed in Sweden.

Therefore, no Swedish company should accept a transfer pricing related adjustment made by a Swedish or a foreign tax agency without ensuring that it would be entitled to apply for a MAP with the Swedish Competent Authority in order to resolve the double taxation situation. In our experience most MAP cases are resolved, even though it could take some time to resolve the issue.

If a double situation arises, do not hesitate to contact any of your PwC tax advisor for assistance on such a matter.

Do you have any questions on corporate taxation?

Pär Magnus Wiséen

Pär Magnus Wiséen

Pär Magnus Wiséen arbetar på skatteavdelningen på PwC:s kontor i Stockholm med internprissättning och frågor som uppstår i samband med omstruktureringar och förändringar inom större koncerner.
010-213 32 95

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