Leading practices for managing the competent authority process for US-based multinational enterprises

August 2013
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Leading practices for managing the competent authority process for US-based multinational enterprises

At a glance

The term "Competent Authority" is used in income tax treaties to identify the designee or representative in each of the jurisdictions who will be responsible for implementing the treaty and its provisions.

Under pressure to close revenue gaps and to address perceived aggressive tax positions related to the pricing of cross-border transactions, both the US and foreign tax authorities are imposing very large tax adjustments upon multinational enterprises. When this situation arises, a company potentially could be required to pay tax twice on the same income for the same period in the local country proposing the adjustment and in the other country where the counterparty to the transaction has already reported the income on its tax return and paid tax on that income. In these instances, it is important for companies to understand and to take advantage of the various forms of assistance available to them under the applicable tax treaties including seeking relief under the mutual agreement procedures (MAP) provided by the Office of the Competent Authority within the tax administration. Requesting MAP assistance in a timely manner and fully engaging in the process are critical success factors for managing the risk of double taxation by multinational enterprises.