The mutual agreement procedure (MAP) is an out-of-court procedure independent of any domestic law remedies. It aims to eliminate the double taxation of taxpayers.
The MAP is governed by the bilateral tax treaty executed by France with another Contracting State. At present, more than 120 treaties containing MAP provisions are binding on France.
The purpose of the MAP is to remedy either double taxation or taxation that is non-compliant with the relevant treaty. Double taxation may be legal (when the same taxpayer is taxed on the same income in two States) or economic (when taxation of the income of a taxpayer in one State duplicates taxation of the income of another taxpayer who is related to the first in another State. This is particularly common for the transfer of profits between companies belonging to the same group).
Any individual or legal entity residing or domiciled in either State which is party to the treaty may apply for a MAP.
The MAP only covers taxes that are explicitly mentioned in the treaty: income tax, corporation tax, corporate surtax, general social security contributions, social security debt repayment contributions, wealth tax "impôt sur la fortune immobilière", death duties, accordingly.
Nevertheless, interest on arrears, penalties and surcharges are not covered by the MAP.
Applying for a MAP
In the majority of cases, a MAP may be applied for when the taxpayer “considers that the actions of one or both of the Contracting States result or will result for him in [double taxation or] taxation not in accordance with the provisions of this Convention”.
As a result, the MAP is contingent on a prior administrative measure having been taken. In France, this administrative measure may be :
An adjustment proposal in the event of an adversarial adjustment procedure
A notice of the tax bases or items for estimated assessments
A withholding tax levy
The case must be presented to the competent authority of the Contracting State in which the taxpayer is a resident within a time limit of between three months and three years depending on the treaty. Some treaties do not stipulate any referral deadline.
To be valid, the application should contain the following information and documents:
First name, surname, postal and email addresses
Detailed information on the facts and circumstances having led to the double taxation or taxation which is non-compliant with the treaty
Details of the years and taxes concerned by the double taxation or taxation which is non-compliant with the treaty
Copies of the tax notices and adjustment proposals or equivalent documents having led to the alleged double taxation or taxation which is non-compliant with the treaty
Details of administrative remedies instituted and any court judgment concerning the case
A declaration under which the taxpayer undertakes to reply as comprehensively and rapidly as possible to all reasonable and appropriate requests from the competent French authority
The competent authorities may refuse to institute the MAP when:
The taxpayer has not provided concrete evidence of the double taxation
The administrative measures causing the double taxation included serious penalties that have become definitive
The taxpayer at first sought to get around the provisions laid down in the bilateral convention by himself correcting the income or profits declared in a State on the grounds that the other State made an adjustment concerning the same income or profits
In OECD Member countries, the average timeline for processing MAPs is approximately two years.
The MAP is broken down into an initial written phase between the relevant competent authorities during which the tax authorities set out their respective positions, followed by a second phase of negotiations at joint committee meetings.
As the MAP is a semi-diplomatic process, the taxpayer is not entitled to consult the written exchanges between the States’ competent authorities and does not take part in the negotiations themselves.
At the end of the MAP, the competent authority to which the case was initially referred by the taxpayer advises the latter of the outcome decided on by the authorities of both States.
If the taxpayer accepts the solution put forward, he is asked to refrain from any administrative or judicial remedy challenging both the substance and form of the disputed taxation so as to avoid any risk of dual exemption.
If the taxpayer rejects the proposal or fails to reply, the solution reached by the authorities of both States will lapse and the taxpayer’s situation may be settled in each State on the basis of its interpretation of its legislation and the treaty.
As part of the MAP, the competent authorities only have an obligation of due diligence. Should the States fail to reach an agreement, the mutual agreement procedure is terminated without eliminating the double taxation. In this case, the taxpayer’s situation will be settled in each State.
MAJ le 16/02/2018