On September 26, 2024 the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) is publishing a Model Competent Authority Agreement (MCAA) to facilitate the implementation of its political commitment on Amount B of Pillar One. This practical tool is designed to be particularly beneficial for jurisdictions with limited resources and data availability.
Under this commitment, subject to their domestic legislations and administrative practices, members of the Inclusive Framework will respect the outcome determined under the simplified and streamlined approach to in-scope transactions where such approach is applied by a covered jurisdiction and will take all reasonable steps to relieve potential double taxation that may arise from the application of the simplified and streamlined approach where there is a bilateral tax treaty in effect between the relevant jurisdictions.
Jurisdictions can use the model competent authority agreement included in this note to implement the political commitment where there is a tax treaty in place. Entering into a competent authority agreement is optional for jurisdictions. The absence of such an agreement does not, in itself, impede the implementation of the political commitment, which could be implemented by jurisdictions through other means in light of their legal and administrative systems.
Inclusive Framework members that wish to extend the political commitment to jurisdictions not included in the list of covered jurisdictions may also use this model.
The model includes optional provisions in blue so competent authorities can customise the agreement to the particular circumstances of the applicable tax treaty (e.g. ambulatory reference to the OECD Transfer Pricing Guidelines). Similarly, the text of this model competent authority agreement should be considered as suggested language only; therefore, jurisdictions are free to modify the specific language of the different provisions in their bilateral negotiations.
When including the optional provisions for ambulatory references in their competent authority agreements, jurisdictions should bear in mind that future updates to the OECD Transfer Pricing Guidelines regarding the simplified and streamlined approach may become applicable.
The Model Competent Authority Agreement on the Application of the Simplified and Streamlined Approach as published on September 26, 2024 contains the following 7 sections:
- SECTION 1 – Definitions;
- SECTION 2 - Scoping criteria;
- SECTION 3 - Determination of the return;
- SECTION 4 - Mutual Agreement Procedure;
- SECTION 5 – Notification;
- SECTION 6 – Amendments; and
- SECTION 7 - Term of Agreement.
Further background
At the beginning of this year, the Inclusive Framework already released a report on Amount B of Pillar One. This report provides a simplified and streamlined pricing framework for baseline marketing and distribution activities that is expected to reduce transfer pricing disputes, compliance costs, and enhance tax certainty for tax administrations and taxpayers alike.
Additional guidance on Amount B – including the definition of covered jurisdiction for the Inclusive Framework political commitment on Amount B – was published in June 2024, allowing jurisdictions to begin with implementation.
Further work on the Pillar One package, including the Amount B framework, is ongoing as indicated in the Statement by the Co-Chairs of the Inclusive Framework on May 30, 2024.
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