Annex: Simultaneous tax examinations ...

1.
• For the purpose of this Annex the expression ‘simultaneous tax examination’ means an arrangement between the two States to examine simultaneously and independently, each in its own territory, the tax affairs of a taxpayer or taxpayers in which they have a common or related interest, with a view to exchanging any relevant information which they so obtain.
2.
• The disclosure of information exchanged under the simultaneous examination arrangement is subject to the provisions of the Convention and will be used only for tax purposes.
• Any exchange of information which follows from such examinations either on request or spontaneously will be made through the competent authorities.

1.The main purpose of a simultaneous tax examination is, inter alia:(a)to determine a taxpayer’s correct liability in cases where:(i)costs are shared or charged and profits are allocated between taxpayers in different taxing jurisdictions or, more generally, transfer pricing issues are involved;(ii)apparent tax avoidance techniques or patterns involving substance versus form transactions, controlled financing schemes, price manipulations, cost allocations or tax shelters are identified;(iii)unreported income, money laundering, kickbacks, bribes, illegal payments, etc. are identified;(iv)transactions with tax havens and tax avoidance or evasion schemes involving tax havens are identified.(b)to facilitate an exchange information on:(i)multinational business practices, complex transactions, examination issues and non-compliance trends that may be particular to an industry or group of industries;(ii)cost sharing arrangements;(iii)profit allocation methods in special fields such as global trading and new financial instruments.2.A simultaneous tax examination is not intended to be a substitute for the mutual agreement procedure provided for under Article 25 (mutual agreement procedure) of the Convention.

1.
• The competent authority of each State will identify independently taxpayers it intends to propose for a simultaneous examination.
2.
• The competent authority of each State will inform its counterpart in the other State of its respective choice of potential cases for simultaneous examinations using the selection criteria described below. It will explain, as far as possible, why it has chosen these cases and provide the information leading to its proposals, together with any other relevant information, as well as its statute of limitation applicable to the cases proposed for simultaneous examinations.
3.
• Each State will determine if it wishes to participate in a particular simultaneous examination.
4.
• The competent authority requested to participate in a simultaneous examination will consider the information in conjunction with information from its own sources and will confirm in writing to its counterpart its agreement or refusal to undertake a specific simultaneous tax examination [mentioning the taxpayer(s), taxes and tax years involved]. Before making its confirmation, the competent authority will seek to obtain any information that it requires in order to reach a decision, either under its domestic laws or under the provisions of Article 26 (Exchange of Information) of the Convention.
5.
• The requested competent authority will indicate a designated representative who will have functional responsibility for directing and coordinating the examination. The applicant competent authority will also indicate in writing a designated representative.
6.
• The competent authorities may then present to each other requests for the exchange of information or provide each other with information spontaneously under and in conformity with the Convention.
7.
• The designated representatives of the competent authorities will take care of the practical aspects of the simultaneous examination (timetable, periods to examine, State having the functional responsibility for coordinating the examination). If needed and if legally possible, representatives of the competent authorities of the foreign State may be allowed in the other State.
8.
• The prerequisite and therefore essential condition of selection is that the tax years will be open for examination in the two States.
9.
• The competent authority of each State may, by a declaration addressed to its counterpart in the other State, indicate that, according to its internal legislation, it will inform its residents or nationals before transmitting information concerned in conformity with the Article 26 (Exchange of Information) of the Convention.

Any case selected for a simultaneous examination will generally involve a taxpayer or taxpayers having operations either through affiliates or through permanent establishments in the two States. The factors taken into consideration in determining whether a case is selected for simultaneous tax examination may include, inter alia:

(a)
• indication of tax avoidance and evasion;
(b)
• indication of substantial non-compliance with tax law in the two States;
(c)
• indication of a manipulation of transfer prices to the potential detriment of the two States;
(d)
• indication of other forms of international tax planning which, if countered successfully, may generate additional tax yield in the two States;
(e)
• indication that the economic performance of a taxpayer or related taxpayers, over a period of time, is significantly worse than it might be expected, for instance:
(i)
• the economic performance does not reflect appropriate profits when measured against sales, total assets, etc;
(ii)
• in cases where the taxpayer consistently shows losses, especially long-term losses;
(iii)
• in cases where the taxpayer, regardless of profitability, paid little or no tax over the relevant period;
(f)
• existence of transactions involving tax havens;
(g)
• situations where the competent authorities consider it is in the interest of the tax administrations concerned, in order to promote international tax compliance.

Examinations will be conducted separately within the framework of national law and practice by tax administration officials of each State using the available exchange of information provisions. The responsibility lines will be clearly defined. There will be no interchange of personnel, but the presence of representatives of the competent authorities of the foreign State (if legally possible) may be justified for the efficiency of the examination.

Before the start of the tax examination the tax officials in charge of the case will consider, with their counterparts from the other State, the examination plans of each State, possible issues to be developed and target dates. It may be appropriate to hold coordination meetings to plan and follow closely the performance of the simultaneous examination.

A simultaneous tax examination requires the cooperation of tax administration officials located in the two States who will simultaneously but independently examine the taxpayer(s) within their jurisdiction. They will try as far as possible to synchronize their work schedules, since potential double taxation issues may arise in the course of simultaneous tax examinations:

(a)
• the taxpayers will be able to present a request for the opening of the mutual agreement procedure at an earlier stage than they would have if there was no simultaneous examination;
(b)
• the representatives of the competent authorities will be able to build up more complete factual evidence for those tax adjustments for which the mutual agreement procedure may be requested.

If either State concludes that it is no longer beneficial to continue the simultaneous examination of a case, it may withdraw by notifying the other State.

The simultaneous tax examination will be concluded after coordination and consultation between the competent authorities of each State. Issues pertaining to double taxation raised by the examination are reserved to the Mutual Agreement Procedure.