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More than five years have passed since the implementation of the Base Erosion and Profit Shifting (BEPS) package through the Inclusive Framework. Tax certainty remains higher than ever on the global agenda of the Organisation for Economic Cooperation and Development (OECD). The number of members of the Inclusive Framework rose to 141 in November 2021. This is a good time to consider whether the OECD’s peer review process in relation to treaty dispute resolution mechanisms has been effective in enhancing tax certainty. By April 2022, all Stage 1 peer reviews (that is 82 Stage 1 peer reviews) and 69 Stage 2 peer reviews have been finalised.

The Inclusive Framework and the peer review process

In 2015, the final package of the OECD/G20 BEPS project was released, bringing about a paradigm shift in international tax reform. As part of this final package, the improved dispute resolution measures under the Action 14 final report aimed to:

minimise the risks of uncertainty and unintended double taxation by ensuring the consistent and proper implementation of tax treaties, including the effective and timely resolution of disputes regarding their interpretation or application through the mutual agreement procedure.

The following year the Inclusive Framework, tasked with ensuring the widespread adoption of the BEPS package, was inaugurated. Membership was open to developed and developing countries, to achieve certainty in relation to the application of the new measures.

The Inclusive Framework member countries committed to implement a minimum standard in relation to the resolution of tax treaty disputes, along with a peer-based monitoring mechanism, to ensure that tax treaty-related disputes were resolved efficiently and effectively. This involved the adoption of the Action 14 minimum standard’s terms of reference. A member’s legal and administrative framework would be evaluated in relation to its performance in: (A) preventing disputes; (B) availability and access to the mutual agreement procedure (MAP); (C) resolution of MAP cases; and (D) implementation of MAP agreements.

The assessment methodology to perform this evaluation required a two-stage peer review and monitoring process. In Stage 1, a member’s peers would prepare an individual report identifying any shortcomings in relation to the four elements of the terms of reference, along with specific recommendations on how to rectify any deficiencies. This would be followed at a later date by Stage 2, when measures taken by the state to overcome any shortcomings would be reviewed. This commitment also involved reporting on MAP statistics in a timely and comprehensive way on an annual basis, pursuant to an agreed reporting framework.

The Action 14 peer review process is a “soft law” measure. It is an instrument that is not legally binding, but relies on peer pressure and collegial persuasion, and that has the advantage of respecting the sovereignty of individual members. A disadvantage is that these peer reviews lack a direct accountability mechanism.

Evaluating the success of the peer review process

The latest 2021 Inclusive Framework progress report claims that the Action 14 minimum standard peer reviews have had a positive impact on tax certainty, as many jurisdictions continue to address dispute resolution deficiencies identified.

The peer review process is reported as providing an impetus for the speedier resolution of MAP cases, and an increasing number of cases have been closed. This may be due, in part, to public scrutiny of these peer reviews.

The number of MAP profiles on the OECD website now cover over 100 jurisdictions, facilitating the use of tax treaty dispute mechanisms by providing certainty in respect to their application in these countries. Many jurisdictions have enhanced tax certainty by either introducing or updating their MAP guidance, and greater access to the MAP is now provided for transfer pricing cases.

However, the 2021 report also included a warning note in relation to the soaring number of MAP disputes, which is proving to be a strain on the resourcing of this controversy resolution mechanism.

Obstacles remain for achieving certainty in tax treaty disputes

While the peer reviews have undeniably had a beneficial effect on tax treaty dispute resolution mechanisms, obstacles remain. The success of the OECD’s peer review process in ensuring tax certainty varies from country to country.

The Stage 2 peer reviews reveal that no country has addressed all of the identified shortcomings in relation to providing an efficient and effective dispute resolution mechanism that complies with the Action 14 minimum standard. Many countries have addressed “almost all” (such as Australia, Ireland, Japan, Malta, New Zealand and the United Kingdom) or “most” of these deficiencies (such as Colombia, India, Latvia, Lithuania and South Africa). Other countries have only addressed “some” problems (such as Chile, Mexico and Portugal), while certain countries have not addressed any of the identified shortcomings (such as Argentina, Croatia and Israel).

Anomalous situations have arisen where a jurisdiction’s Stage 1 shortcomings have been largely overcome, only to have new problem areas arise in Stage 2, for which no comprehensive MAP guidance has been provided. An example is India’s Stage 2 peer report, where several new issues are identified in relation to the implementation of MAP agreements.

The main dispute resolution tool for the prevention of disputes is an advance pricing agreement (APA), whereby potential disputes can be dealt with between taxpayers and tax administrations on an upfront basis. The Stage 1 peer review reports revealed that many jurisdictions had no bilateral APA programme in place. Since the publication of these reports, some countries are making progress in this regard. For example, the South African Revenue Service opened a consultation on a draft model for an APA programme in December 2021.

Even within single jurisdictions, improvements have been uneven. The United Kingdom (UK) issued comprehensive MAP guidance and clarified that access to the MAP will not be denied where taxpayers and Her Majesty’s Revenue and Customs have entered into an audit settlement. However, some UK bilateral tax treaties do not include a time limit for submission of a MAP request.

Although peer pressure has been largely effective in improving the MAP function, certain outlier jurisdictions appear not to have been influenced into compliance. Nevertheless, the detrimental reputational effect of not providing the tax certainty vital to trade, development and investment may still exert external pressure to reform.

It is recommended that the monitoring of treaty dispute resolution mechanisms continues, perhaps through “Stage 3” reports. This would ensure that any lack of conformity with the Action 14 minimum standard is subject to continued public scrutiny. The goal is that any deficiencies remaining at Stage 2 would ultimately be addressed by most, if not all, participating Inclusive Framework jurisdictions.


This is an abbreviated version of an article: Michelle Markham, Action 14 of the BEPS Project: Taking the Pulse of Tax Certainty and Determining the Effectiveness of the Peer Review Process Five Years On, Bulletin for International Taxation, 2022 (Volume 76), No. 2, 96-107.

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