In addition, it is important to consider the impact of a national transaction agreement on the possibility of obtaining double taxation relief in the POP process at a later date. The internal resolution of disputes related to cross-border transactions may, in practice, limit the ability of the competent authority, on the other side of operations, to grant facilities for double taxation. This is mainly due to the fact that such comparisons restrict the negotiations of the competent authorities: the position agreed by the taxpayer with one tax authority may not be acceptable to others. For U.S.-based taxpayers, for example, a national comparison without POPs can be particularly damaging, as taxpayers must prove that they have exhausted all effective and practical remedies to challenge their taxes or that their foreign tax credits are being denied by U.S. tax authorities. The legal basis for a mutual agreement procedure is the DBA concerned. Germany has concluded DBA with more than 90 countries in the world. Most of these DBAs follow the OECD`s draft international agreement. The provisions on mutual agreement procedures are set out in Article 25 of the OECD Model Convention. Recent ABA often contains provisions that prescribe arbitration through an unsuccessful mutual agreement procedure.
Upon receipt of the application, the BZSt verifies whether the conditions for the implementation of a mutual agreement procedure are met. The transnational part of a mutual agreement procedure is only implemented if the request is admissible and duly reasoned and if a satisfactory solution is not possible in Germany. The mutual agreement procedure is designed to determine the tax debt between two countries. The partners in the process are therefore the contracting countries concerned. The applicant herself is not part of the proceedings. However, the applicant is regularly informed of the status of the procedure and the status of the procedure. In the vast majority of cases, countries reach an agreement. As a general rule, the application must be submitted within a time frame set by the DBA. If the applicable DBA does not set a deadline for applications, a deadline is indicated in the Memorandum on Mutual Agreement Procedures (subsection 2.2.3). Action 14 of the BEPS Action Plan aims, in particular, to improve the effectiveness of the Mutual Agreement Procedure (POP) in the settlement of contractual disputes and transfer pricing.
Subjects who believe that their imposition is contrary to a DBA or the European Arbitration Convention may request a procedure of mutual agreement. In Germany, the Bundeszentralamt for Steuern (BZSt) is responsible for the implementation of these procedures.