A mutual agreement procedure in the context of double tax treaties

Pepeliaev Group advises that the Russian Ministry of Finance has published its Guidelines on a mutual agreement procedure[1].

A mutual agreement procedure (‘MAP’) is understood to mean a procedure under a double tax treaty (‘DTT’) involving Russia and a foreign partner state to resolve disputes in the following cases:

• if actions of a tax authority of one or both states which have entered into a DTT have or could have resulted in taxation other than that for which the DTT provides;
• to resolve, by mutual agreement, any difficulties or doubts arising when the DTT is construed or applied;
• to hold consultations between competent authorities on the issues for which the DTT provides in order to eliminate double taxation.

An interested party should file with the Russian Ministry of Finance (the ‘Finance Ministry’) an application for a MAP in the form of a personal application in writing. The application should: contain the required information; be made in Russian, or in English together with a Russian translation); and attach sufficient information and documents.

The following persons are entitled to file an application for a MAP:

• Russian tax residents;
• individuals who are Russian nationals if the question under consideration concerns non-discrimination provisions under the DTT (if, in the opinion of such persons, taxation has been or could have been levied in contravention of the DTT);
• non-Russian tax residents (both individuals and legal entities) if such a possibility is provided for by the DTT with the state of which the relevant person is a resident.

No fee is stipulated for filing an application for a MAP.

The time limits for filing an application for a MAP are established by a particular article of the DTT. In most DTTs, the time limit is 3 years after the applicant became aware of the actions which resulted in taxation that was not line with the DTT.

The following documents should be attached to the application for a MAP:

• a statement (for which there is no set form) containing the principal information about the applicant;
• a copy of the certificate of a legal entity's principal state registration number (referred to by the Russian acronym OGRN) or of the certificate of an individual entrepreneur's principal state registration number (referred to by the Russian acronym OGRNIP), for legal entities and individual entrepreneurs respectively;
• the applicant’s claim, citing which DTT the claim concerns;
• the position of the person to whom the DTT applies and how the discrepancy between the taxation and the DTT's provisions manifests itself;
• details about facts and circumstances of the case;
• information about the tax period indicated in the application;
• copies of contracts and agreements and other documents;
• copies of tax audit materials;
• detailed information about any pre-trial or court proceedings and any decisions about the situation at hand in Russia or abroad.

The Guidelines provide for additional types of documents in the following situations: (i) if the violation has already taken place; (ii) if the applicant (his foreign related company) has filed a claim to a higher tax authority or a court; (iii) if the application concerns transfer pricing; (iv) if the applicant has applied to the competent authority of the partner state under the DTT; and others.

The Guidelines state that an applicant may not be involved in a MAP because a MAP is conducted solely between competent authorities of partner states under the DTT. The applicant only facilitates the procedure and is advised of the results once the procedure is complete.

What to think about and what to do

We recommend that you familiarise yourself with the Guidelines on a mutual agreement procedure as the onset of such procedures is an important signal of Russia’s interest in conducting such procedures under DTTs and enhancing their effectiveness. This, in turn, may provide further guarantees to foreign investors in terms of it being impossible for situations in which taxation runs counter to a DTT to occur in practice.

Help from your adviser

Pepeliaev Group offers a wide range of services involving comprehensive support for business on international taxation issues associated with the application of provisions of DTTs. We are ready to assist you with drafting an application and gathering the required documents to initiate a MAP.