Egyptian perspective on a key mechanism in resolving double taxation disputes

Double taxation, both legal and economic, presents a significant challenge for taxpayers and governments. The primary goal of double taxation conventions (DTCs) is to eliminate or reduce this burden. One of the most crucial tools for achieving this is the mutual agreement procedure (MAP).

A MAP, as outlined in Article 25 of the OECD Model Tax Convention on Income and on Capital, allows the competent authorities of contracting states to resolve tax disputes that could result in double taxation, ensuring fairness and preventing double taxation in cross-border cases.

MAPs play a key role in resolving double taxation disputes between countries. Under a MAP, the tax authorities of two countries work together to resolve issues arising from the interpretation or application of tax treaties, especially in cases where the same income is taxed in both countries. They cover not only transfer pricing disputes but also extend to matters such as residency (Article 4) and passive income such as dividends, interest, and royalties (articles 10, 11, and 12).

A MAP allows taxpayers to seek relief from double taxation by requesting negotiations between tax authorities, ensuring that tax treaty provisions are applied correctly, and often providing an alternative to domestic litigation. The process promotes consistency in international taxation and supports cross-border trade and investment.

The OECD's BEPS Project, launched in 2015, significantly enhanced the role of MAPs. BEPS Action 14 made it a minimum standard for participating jurisdictions to ensure the resolution of treaty-related disputes in a timely and effective manner. As a result, MAPs have become an essential part of the tax dispute resolution framework globally, ensuring greater tax certainty and reducing instances of double taxation.

MAPs have become increasingly relevant in resolving transfer pricing disputes, especially with respect to corresponding adjustments. Corresponding adjustments often occur when one country increases a company’s taxable profits based on transfer pricing rules, leading to a potential mismatch in the other jurisdiction. A MAP facilitates negotiations between the tax authorities to adjust the profits of the associated enterprises involved, thus preventing double taxation.

MAPs may also have a complementary role with advance pricing agreements (APAs), which are pre-emptive agreements between tax authorities and taxpayers to establish transfer pricing terms for transactions in advance. While these agreements are built to provide certainty to taxpayers and reduce the risk of future disputes, disputes often occur post application, especially with unilateral APAs. The MAP process can help to enforce or resolve issues related to these agreements. For example, an APA may establish the transfer pricing method for a transaction, while a MAP may be used to resolve a dispute related to the application of that method.

Egypt has taken steps to integrate MAPs into its tax framework, particularly through its network of bilateral tax conventions. Egypt is party to 59 DTCs, some of which include provisions for MAPs. As indicated in the OECD’s 2024 peer review reports, Egypt’s implementation of MAPs is still in its early stages. The report highlights the need for Egypt to align a larger number of its DTCs with Article 25 of the OECD Model Tax Convention 2017, which governs MAPs, to expand the MAP mechanism across treaties, and enhance its effectiveness.