Navigating Cross-Border Taxation Disputes: Insights into Resolution Strategies

Introduction:

The implementation of the UAE Corporate Tax has significantly amplified the significance of cross-border taxation disputes and their resolution.

In this article, we delve deeper into the methods available for resolution, exploring their nuances and applicability in the context of international business operations.

International dispute resolution methods encompass various avenues, including:

1.????? Mutual Assistance Procedure (MAP),

2.????? Arbitration. and

3.????? Human Rights Conventions.

1. Mutual Assistance Procedure (MAP):

MAP mostly deals with disputes involve cases of double taxation (juridical and economic) as well as inconsistencies in the interpretation and application of a DTC. ?

The Mutual Assistance Procedure (MAP), embedded within bilateral Double Taxation Conventions (DTCs), serves as a cornerstone for resolving disputes between taxpayers and tax authorities across borders. Its primary objective is to address instances of double taxation and inconsistencies in the interpretation and application of DTC provisions.

MAP facilitates dialogue between designated representatives, or competent authorities, from contracting states to reach a resolution. However, while MAP encourages cooperation, it does not mandate a binding agreement, often resulting in impasses, particularly on complex economic issues like valuation methodologies and transfer pricing adjustments.

Furthermore, the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project's emphasis on enhancing dispute resolution mechanisms has propelled the significance of MAP. Despite its limitations, MAP remains a vital tool for resolving international tax disputes, especially in cases where bilateral DTCs are in place.

2. Arbitration:

“Arbitration is?a procedure by which a dispute is submitted by agreement of the parties, to one or more arbitrators who make a binding decision. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.”?

Arbitration presents an alternative mechanism for resolving cross-border taxation disputes, offering a binding decision-making process outside traditional court systems. Endorsed by organizations like the OECD and UN, arbitration provisions are embedded within Model DTCs, providing parties with a means to resolve disputes swiftly and impartially.

However, the UAE's stance on arbitration remains ambiguous due to the absence of a published Model DTC. While the OECD Model includes arbitration provisions, the lack of clarity regarding the UAE's acceptance of arbitration as a resolution tool complicates its applicability in practice. Without a clear policy framework, taxpayers and authorities may face challenges in utilizing arbitration effectively.

3. Human Rights Conventions:

In cases where disputes remain unresolved through MAP or arbitration, recourse to human rights conventions may be considered, such as:

• European Convention on Human Rights (European Convention) and
• United Nations International Covenant on Civil and Political Rights (ICCPR).

While these conventions primarily focus on safeguarding individual rights, their evolving jurisprudence suggests potential applicability in tax matters.

However, it's essential to note that the UAE's non-signatory status to key human rights conventions limits their direct relevance in resolving tax disputes. The absence of ratification poses challenges for taxpayers seeking recourse under these conventions, emphasizing the need for alternative avenues for dispute resolution.

Conclusion:

In conclusion, navigating cross-border taxation disputes requires a nuanced understanding of available resolution strategies and their practical applicability. While MAP emerges as a preferred method due to its integration into bilateral DTCs and alignment with OECD guidelines, challenges persist, particularly concerning arbitration and human rights conventions.