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The Importance of Dispute Avoidance and Resolution Mechanisms: Domestic and international. Konrad Szpadzik specialist in APA Unit Direct Taxes Department. Double taxation. Double taxation is the levying of tax by two or more jurisdictions on the same declared income

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The Importance of Dispute Avoidance and Resolution Mechanisms: Domestic and international

Konrad Szpadzik

specialist in APA Unit

Direct Taxes Department

double taxation
Double taxation

Double taxation is the levying of tax by two or more jurisdictions on the same declared income

Legal double taxation - two countries levy tax on the same income of the same taxpayer (source vs. residency)

Economic double taxation refers to the taxation of two different taxpayers with respect to the same income (or capital)

transfer pricing disputes
Transfer pricing disputes

State A

State B

price 500

new price 300

Income 2000

Income 1000

Income after audit 2200

200 WAS TAXED TWICE

why avoid
Why avoid?

Costs:

  • meetings (with taxpayers, other TA’s),
  • travels,
  • collecting information from taxpayer and local tax units,
  • independent experts, analysis, translations,
  • labour costs

Time:

  • exchange of correspondence between TA’s,
  • cooperation with local tax units,
  • attitude of second TA,
  • cooperation with taxpayer
tools
Tools
  • OECD:
  • Model Tax Convention on Income and on Capital,
  • Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations,
  • current work (WP6 TPI),
  • European Union:
  • Convention 90/436/EEC on the elimination of double taxation in connection with the adjustment of transfers of profits between associated undertakings,
  • Joint Transfer Pricing Forum (JTPF) reports.
  • United Nations:
  • UN Model Tax Convention,
  • Transfer pricing practical manual for developing countries.
how to resolve
How to resolve?
  • Double tax agreements:
  • Mutual Agreement Procedure (art. 25 of OECD MK),
  • Exchange of information (art. 26 of OECD MK).
  • Poland has 89 DTAs.
  • EU Arbitration Convention:
  • Poland since 2007
arbitration convention
Arbitration Convention

The case must be presented within three years of the first notification of the action which results or is likely to result in double taxation

If the CA is not itself able to arrive at a satisfactory solution, shall endeavour to resolve the case by mutual agreement with another CA

If the CAs fail to reach an agreement within two years of the date on which the case was first submitted, they shall set up an advisory commission charged with delivering its opinion on the elimination of the double taxation in question.

advisory commission
Advisory commission
  • The advisory commission shall consist of:
  • its Chairman,
  • two representatives of each competent authority concerned,
  • an even number of independent well known authority to be appointed by:
    • mutual agreement from the list of persons or,
    • in the absence of agreement, by the drawing

of lots by the competent authorities concerned.

advisory commission1
Advisory commission

The advisory commission shall deliver itsopinion not later than six months from the date on which the matter was referred to it.

The advisory commission shall adopt its opinion by a simple majority of its members.

The costs of the advisory commission procedure,shall be shared equally by the Contracting States concerned.

The CAs may take a decision which deviates from the advisory commission's opinion.

BUT

If they fail to reach agreement, they are obliged to act in accordance with that opinion.

polish perspective
Polish perspective

Meetings – the best way to shorten the procedure!

Around 13 arbitrations in progress

Couple cases already resolved

Increased interest in this procedure amongst taxpayers

Almost all TP cases conducted on the basis of the convention

Faster procedure than MAPs

MAP – CAs shall endeavour to resolve the case

Arbitration – CAs have to resolve the case

No advisory commission yet

Most cases with Germany

how to prevent
How to prevent?

Advance Pricing Agreements

Well-prepared TP documentation

apa in poland
APA in Poland

APA regulations in Poland since 2006

Unilateral, bilateral and multilateral APAs

APA as an administrative decision

Time limits to issue a decision 6 months for unilateral APA, 12 months for bilateral APA and 18 months for multilaterals.

APA application fee - 1% of the value of a transaction with certain limitations

Preliminary meetings before application

Possibility of prolonging, changing

or revoking an APAs

Monitoring of APA

taxpayer s perspective
Taxpayer’s perspective
  • APA are viewed by taxpayers as a positive option
  • increases security of investments,
  • attracts investments in the country,
  • promotes stability of operations
  • No need of audit to establish the correct transfer pricing
  • Increased interest in bilateral and multilateral APAs
  • amongst taxpayers
  • Unilaterals = shorter procedure
  • Bilaterals and multilaterals = higher certainty
what we need
What we need?

Cooperation

Sharing knowledge

Learning one another’s approach

Meetings, trainings, workshops (case studies)

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Thank you for your attention

Konrad Szpadzik

12 Swietokrzyska St.

00-916 Warsaw

tel.: +48 22 694 48 87

fax :+48 22 694 33 31

Email: Konrad.Szpadzik@mofnet.gov.pl

www.mf.gov.pl