Kumar & Byrnes' Comments on Dispute Prevention and Resolution For UN's Framework Convention

Pramod Kumar Siva and William Byrnes of Texas A&M University School of Law’s International Tax Risk Management graduate program

We appreciate the opportunity to provide input on this historic effort to create the Framework Convention, refining proven models for global inclusiveness and operability. We support an ambitiously strong, yet flexible, mechanism to resolve tax disputes among parties. Taxpayers consider tax certainty, the assurance that profits will not be taxed twice and that tax disputes will be resolved promptly, to be of utmost importance for cross-border investment decisions. Academic literature reinforces that effective dispute resolution is the key to the legitimacy and success of a multilateral (tax) convention. We therefore welcome the ideas presented in the concept note, including a menu of dispute-resolution options and the extension of these mechanisms to cases without pre-existing treaties.

Our specific comments in the attached addendum address seven areas derived from the second protocol concepts: (1) Mutual Agreement Procedure; (2) Optional Mediation and Expert Facilitation; (3) Arbitration; (4) No Treaty Situations; (5) Information Access and Transparency; (6) Taxpayer Rights; and (7) Existing Instruments.

1. Mutual Agreement Procedure (MAP)

Baseline: Any dispute resolution system should begin with the MAP between tax authorities, standard in bilateral tax treaties. We support making MAP mandatory for parties: i.e., if a taxpayer raises a double taxation issue, the competent authorities of the relevant states must engage in good-faith negotiations to resolve it. The Convention should set milestones; for example, resolution within two years, then trigger arbitration. Parties should suspend the collection of the disputed amount or provide equivalent relief during MAP/arbitration to prevent irreversible economic double taxation.

Multilateral: We encourage including the concept note’s intriguing idea of a multilateral MAP; it could allow more than two countries to jointly resolve cases involving multiple jurisdictions (a development increasingly relevant for transfer pricing involving regional supply chains).

Expert Forum: We also believe the Convention should support MAP, such as a coordination forum and prequalified experts that countries consult during complex MAP cases (perhaps through the Secretariat). This could especially help developing countries, which have less MAP experience.

2. Optional Mediation and Expert Facilitation

Optional Mediation: We support the concept note’s suggestion that parties opt into mediation or expert non-binding determination as intermediate steps. If competent authorities reach an impasse, they could, by mutual agreement, invite a prequalified mediator (from the coordination forum) to bridge differences. This is analogous to the “advisory opinion” approach used in some MAP processes.

We recommend that the Convention’s dispute protocol include mediation as an option that competent authorities can agree to use without prejudicing their positions. Mediation is beneficial where technical expertise is required (e.g., a complex transfer pricing valuation); an independent expert could review facts and suggest a fair outcome. While mediation would be voluntary and its outcome not binding, it can facilitate consensus.

Joint Audits: We also note the concept note’s mention of joint audits serves as a form of pre-dispute collaboration that can mitigate later conflict. Parties can experiment with joint or parallel audits and then share best practices through the Convention’s framework. The Protocol could endorse pilot programs for joint audits among consenting parties. We suggest using the ICAP as a reference point. Joint audit measures align with dispute prevention (through tax risk identification, cooperative compliance, and APA programs), which may prevent disputes before they arise, preferable to after-the-fact resolution.

3. Arbitration

Binding: We strongly endorse binding arbitration as a backstop for unresolved disputes, as this is ultimately the only way to guarantee the elimination of double taxation in complex cases. Global data reflects that most MAP cases are resolved. Yet, some disputes linger for many years, leaving the taxpayer to carry forward growing tax provisions, undermining investment. Binding arbitration (included in many tax treaties and BEPS MLI Article 19) assures taxpayers that, after a defined period, an impartial decision will be rendered, closing the accounting.

Opt-in Mechanism: We recognize that not all countries are immediately comfortable with arbitration, often due to sovereignty or fairness concerns. Therefore, we support the concept note’s approach of an arbitration opt-in mechanism. The dispute resolution protocol can allow a party to include mandatory arbitration but opt out for specific partners. Countries ready for arbitration can move forward while others wait to assess the results, i.e., a structured optionality in practice. 

Fairness: We urge that the arbitration process be designed to address fairness concerns. Arbitration panels can be constituted in a balanced way (one arbitrator from each state’s region or choice, plus a third agreed arbitrator from the coordination forum’s prequalified experts). The rules could draw on the UN Manual on Effective MAP and the Permanent Court of Arbitration rules to ensure transparency and impartiality, while maintaining confidentiality. We also see merit in allowing both the “independent opinion” arbitration model and the “final offer” (baseball) arbitration model so that countries can choose their preferred model. Final-offer arbitration can encourage authorities to take reasonable positions to avoid extreme outcomes, but independent opinion allows nuanced solutions; each has its place.

Tax arbitration under a multilateral convention is state-to-state (competent authorities resolving the taxpayer’s issue), unlike investor-state arbitration. It does not empower taxpayers to sue states; it simply provides an expert’s decision to both governments. Framing arbitration this way may alleviate sovereignty concerns. Arbitration decisions could enable states to settle.

Making arbitration opt-in is acceptable so long as the Convention encourages gradual uptake. We recommend including a review clause after a five-year term. Parties will review the effectiveness of their dispute-resolution procedures and consider expanding their use of arbitration.

4. No-Treaty Situations

No Treaty: A welcome revolutionary idea in the concept note is the application of dispute mechanisms even where no bilateral tax treaty exists between the parties. This could provide relief to many developing-country pairs without treaty networks. For a multinational that may investigate frontier markets without a treaty in place, the prospect that the UN Convention’s dispute-resolution protocol provides for MAP/arbitration could reduce investment risk. It would mitigate the high risk of unrelieved double taxation that suppresses long-term capital investment. The Protocol could outline a MAP if no treaty is in place. A taxpayer, citing the Convention, would bring the issue to the competent authorities of the countries concerned. Those authorities would negotiate under Convention auspices, as if under a treaty’s Article 25 MAP.

Broad Scope: We recommend that the Convention explicitly confirm its applicability to disputes not covered by other agreements. That might entail defining the “covered disputes” in the Protocol as any instance of double taxation or taxation not in accordance with the Convention’s substantive provisions (once those exist) or any analogous situation. Even if the Convention’s own substantive provisions are limited, the Protocol could say it applies to a broad scope to ensure maximum utility: 

disputes concerning the interpretation or application of any agreement or arrangement relating to taxation between parties, or in the absence of such agreement, any case of double taxation arising. 

Coordination Forum: We note that the concept note also raises the possibility of the UN playing a hosting or supporting role in such cases. We think that’s wise: for countries without prior treaty experience, the UN (through the Secretariat or coordination forum) could guide the MAP process, almost as if providing good offices. This could be modeled on how the UN assists in other diplomatic negotiations or how the OECD provides for competent authorities. The UN coordination forum might maintain a list of qualified mediators/arbitrators to assist, which would help ensure consistency and quality.

In conclusion, we advocate a comprehensive scope for the dispute resolution mechanism that covers treaty-based, Convention-based, and non-treaty disputes to deliver tax certainty worldwide. This will be a game-changer for many multinational groups operating in jurisdictions that currently lack a dispute-resolution safety net.

5. Information Access and Transparency in Disputes

Information Access: Effective dispute resolution requires that tax authorities have access to necessary information and that taxpayers are transparent about relevant facts. We support the concept note’s attention to information access issues. Two aspects are key: (a) information sharing between governments during a dispute, and (b) information provided by taxpayers. The Convention’s administrative assistance provisions (Article 6) will facilitate the exchange of tax information. We encourage including a protocol provision that, when competent authorities are seeking to resolve a case, they shall exchange all necessary information, and if required, request additional information from the taxpayer or third countries. The Convention should override bank secrecy and other barriers in this context, as in the Mutual Administrative Assistance in Tax Matters Convention, so that nothing prevents full disclosure between the competent authorities handling the MAP. Additionally, taxpayers should be expected to disclose all pertinent facts and documents to both tax authorities to help resolve the case. The protocol might formalize this by allowing competent authorities to jointly request and share information with the taxpayer.

Transfer Pricing Database: We applaud the novel idea to develop a UN-managed transfer pricing comparables database to assist developing countries. Lack of access to quality comparables is a common issue in transfer pricing disputes. Low-capacity authorities often adjust income based on poor data, leading to conflicts that could have been avoided with better information. A global database of anonymized country-by-country report data, public company financials, and bilateral APA data would help balance the playing field. We recommend that the Convention endorse the exploration of such a database. The ICC and businesses would likely contribute to robustness, for example, by sharing industry data under confidentiality. It is essential that any shared data respect confidentiality and business secrets; thus, only aggregated or masked data would be shared to avoid revealing any single company’s sensitive info. The Convention Secretariat could maintain the database in collaboration with the UN Tax Committee and/or OECD.

Transparency: We understand this as transparency between parties and with taxpayers, not as public, because tax disputes are confidential. The Convention might encourage taxpayers to be informed about their MAP status and for competent authorities to be transparent with one another regarding relevant laws and rulings. A provision could require periodic status updates to the taxpayer and an explanation if a case cannot be resolved, triggering an arbitration option.

Additionally, in line with risk-based transparency, we suggest the dispute system prioritizes resources for significant cases (for example, those involving double taxation of substantial amounts or principal issues affecting many taxpayers). Minor disputes may be resolved through simpler mechanisms or mediation, whereas larger or systemic issues may proceed to arbitration. This would ensure the limited capacity (especially of developing country MAP units) is focused on the best return.

6. Protection of Taxpayer Rights in MAP

We emphasize the inclusion of taxpayer rights in the international tax framework. While not explicitly highlighted in the concept note, we believe the dispute-resolution mechanism should incorporate the taxpayer's right to be heard and to be treated fairly. In a MAP, the states are the legal parties, not the taxpayer, but the taxpayer’s input is crucial. We propose that the Protocol include provisions such as: (a) taxpayers have the right to present their case in writing to both competent authorities, (b) the right to appear (in a meeting or via video conference) to explain factual aspects if the authorities or panel request, and (c) the right to confidentiality throughout the process.

Also, once an agreement or decision is reached, we suggest the taxpayer should have the (d) option to reject (especially if arbitration is final and binding). Usually, treaties give the taxpayer the option to reject the solution, in which case domestic law outcomes apply, but double taxation remains. Though rarely exercised, preserving the option is a taxpayer protection.

We also note that (e) speedy resolution is a taxpayer's right. Undue delay can be damaging, hence the importance of the time limits discussed. Incorporating these elements will make the dispute system not only effective but fair from the perspective of those who ultimately bear the tax.

7. Coherence with Existing Instruments

We stress that the Protocol mechanisms be consistent with existing bilateral and multilateral arrangements. OECD’s Multilateral Instrument (MLI) includes an arbitration provision for parties who opt in. The UN Convention’s arbitration should be complementary, potentially allowing arbitration to cover issues across multiple treaties.

We advise against any approach that forces countries to choose between the UN mechanism and the EU Arbitration Convention or MLI arbitration. Ideally, all should work in tandem. If a dispute is eligible for multiple avenues, competent authorities and the taxpayer should mutually agree which forum to use. The taxpayer should not be left in limbo due to procedural wrangling over the forum. Thus, we suggest a clause: 

“Where two or more dispute resolution mechanisms could apply, the competent authorities shall consult with the taxpayer to avoid duplication and agree on a single forum/process to resolve the case.”

New concepts, such as dispute-resolution mechanisms that do not require a treaty, should not inadvertently override specific treaty clauses. For instance, some treaties include a three-year time limit for presenting a MAP case, yet the Convention might allow an extended period. We suggest the protocol include a dominance clause: “For parties to both a treaty and the Convention, whichever instrument is more effective for resolution prevails, by mutual agreement of the competent authorities.”