Mutual Agreement Procedure in UAE: An Overview

For businesses operating across borders, international tax disputes can be a significant challenge. Fortunately, the United Arab Emirates (UAE) provides MAP - see the UAE Ministry of Finance’s Mutual Agreement Procedure Guidance for the UAE-specific process, eligibility, timelines and submission details. This blog post will serve as a guide to understanding MAP in the UAE, its applicability, and the process involved, based on the official guidance.

What is MAP?

The Mutual Agreement Procedure (MAP) is a process used by the UAE and its DTA (Double Tax Agreement) partners to resolve international tax disputes that arise when taxation is not in line with the DTA. It can also address interpretation or application issues within a DTA and instances of double taxation not explicitly covered in the agreement. The primary goal is to eliminate double taxation on income and capital, addressing issues like transfer pricing adjustments that can lead to economic double taxation.

Double Tax Agreements (DTAs)

The UAE has over 100 DTAs in force globally. These legally binding agreements aim to avoid double taxation and prevent fiscal evasion on income and capital. DTAs allocate taxing rights between countries to reduce double taxation instances and prevent economic double taxation, where the same income is taxed in two different states for two different taxpayers.

Legal Basis

MAP requests are based on the DTAs the UAE has with other countries. These clauses are typically based on Article 25 of the OECD Model Tax Convention (MTC) on Income and Capital. The UAE has also adopted MAP provisions through the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), automatically updating DTAs with other MLI signatories. Taxpayers should always consult the relevant DTA for each MAP claim, as different states may have reservations or notifications not aligned with the UAE’s position.

Key Players

• Competent Authority (CA) : In the UAE, this is often the Minister of Finance or their representative. They are independent of the Federal Tax Authority (FTA) and aim to eliminate double taxation, not re-audit the taxpayer.
• Federal Tax Authority (FTA ) : The FTA administers the UAE federal tax system, including auditing taxpayers, issuing tax assessments, and implementing adjustments agreed upon by the UAE CA with treaty states.

When is MAP Available?

MAP is available when a person believes that the actions of one or both contracting states result in taxation not in accordance with the DTA. Common scenarios include:

• Transfer Pricing Adjustments : If the FTA imposes a transfer pricing adjustment on a cross-border transaction without a corresponding deduction in the foreign jurisdiction, it results in economic double taxation.
• Residency Issues : When a taxpayer is deemed a resident for tax purposes in more than one state, leading to double taxation.
• Permanent Establishment/Branch Adjustments : Adjustments to the profits attributed to a permanent establishment in another state.

MAP submissions can also be made if the taxpayer believes that the anti-abuse provision in the applicable DTA applies, or the application of the UAE’s general anti-abuse rule under the UAE Corporate Tax law, conflicts with the provision of the relevant DTA.

Filing a MAP Claim: Required Information

To file a valid MAP claim, taxpayers must provide specific information to the UAE CA, including:

• Taxpayer details (name, address, identification number, and status as a Qualifying Free Zone Person)
• Details of related foreign taxpayers (for transfer pricing cases)
• Information on the foreign tax administration involved
• The specific DTA article(s) that are not being correctly applied
• Relevant fiscal years or periods
• Details of the relationship, situation, or structure of the transactions
• A summary of the facts and analysis of the issues
• Transfer pricing documentation, including economic analysis and the Group Masterfile (if applicable)
• Copies of correspondence with relevant Competent Authorities and tax assessments
• Information on prior requests to Competent Authorities on the same issue
• Schedules of time limitations in each jurisdiction
• Information on any filed notices of objection, appeal, or refund claims
• Authorization for a representative to act for the taxpayer (if applicable)
• Copies of relevant tax rulings, Advanced Pricing Agreements, and clarifications issued by the FTA
• Tax residency certificates (if the case involves tax residency)
• Information related to the tax residency of natural persons
• Copies of any settlements or agreements reached with other jurisdictions
• The taxpayer’s views on possible bases for resolving the issues
• Any other relevant information 

Documents should be in English or Arabic. The UAE CA may request bilingual translations.

The MAP Process

• Eligibility : The UAE CA assesses the completeness of the MAP claim, whether it was submitted within the DTA's time limit, and whether the taxpayer's objection is justified. The UAE CA will endeavor to respond to the taxpayer within two months on its decision as to whether or not to accept the MAP claim.
• Assessment of a MAP Claim : The UAE CA will assess the completeness, timeliness, and validity of the claim. If rejected, reasons will be communicated to the taxpayer and the corresponding authority.
• Objection Justified :
  • Unilateral Relief : The UAE CA determines if it can provide relief independently.
  • Bilateral Negotiation : If unilateral relief is insufficient, the UAE CA seeks to resolve the case through mutual agreement with the corresponding Competent Authority.
• Bilateral Negotiation : The UAE CA prepares a position paper based on the taxpayer's information. Negotiations are conducted at the Competent Authority level, and the taxpayer's involvement is limited to providing views and assisting in fact-finding.
• Outcome :
  • Competent Authority Agreement : The UAE CA notifies the taxpayer of the agreement within two months of its conclusion. The taxpayer must then confirm acceptance or rejection within one month.
  • No Competent Authority Agreement : If an agreement cannot be reached, the UAE CA will notify the taxpayer and close the MAP claim.

Important Considerations for Taxpayers

• Time Limit : Cases must be presented within three years from the first notification of the action resulting in taxation not in accordance with the DTA.
• Domestic Remedies : Generally, a taxpayer cannot simultaneously pursue MAP and domestic legal remedies. However, to avoid a time-bar, the UAE Competent Authority may accept a MAP claim while domestic remedies remain available - provided the taxpayer agrees to suspend those domestic remedies. If the taxpayer accepts the MAP outcome, they must withdraw and renounce any domestic legal remedies for the same issue(s) and period.
• Multi-Year Periods : Taxpayers can request a multi-year resolution via MAP for recurring issues with the same facts and circumstances.
• Communication : Respond to the UAE CA within one month and maintain transparent communication.

Where to Submit MAP Claims

MAP claims to the UAE CA should be submitted to: uaemap@mof.gov.ae 

Conclusion

The MAP offers a valuable avenue for resolving international tax disputes in the UAE. By understanding the process, requirements, and key considerations, taxpayers can effectively navigate this mechanism and work towards eliminating instances of double taxation. Reyson Badger offers expert solutions and guidance regarding MAP claims in the UAE. Contact us today to get personalised tax suggestions for your business.