On January 29, 2024, the OECD launched the outcomes and data for its growing International Compliance Guarantee Program (” ICAP”).[1] The information covers the life of the ICAP program, going back to the very first pilot program that started in January 2018, through its complete program operations since October 2023. In all, the data normally recommend that the program has actually been effective and efficient, with the majority of individuals getting mainly low-risk results from tax administrations.
Secret highlights are:
- the typical time to finish a case was 61 weeks;
- approximately 5 tax administrations participated in each threat evaluation;
- all tax administrations concluded that a specific core location was low-risk in 68% of evaluations;[2]
- a minimum of one tax administration concluded that a person core location was not low-risk in 60% of cases— which cover to 5 core locations; and
- individuals pursued problem resolution in 32% of cases
Conclusion Times
The OECD set a target objective to finish ICAP evaluations in 52 weeks. Early returns for the ICAP program can be found in somewhat behind that objective, at 61 weeks, which the OECD credited to numerous elements consisting of the COVID-19 pandemic. However, the 61-week typical conclusion time is still significantly less time than it handles average to finish an Advance Prices Contract (” APA”) or Shared Contract Treatment (” MAP”) transfer rates case. Even more, approximately 5 tax administrations– and as much as 9– participated in each evaluation. This is even more than the variety of administrations associated with a common MAP or APA, which are frequently bilateral and even when multilateral, hardly ever include more than 3 or 4 tax administrations. However here the data suggest that ICAP evaluations with more tax administrations have actually not always taken longer to conclude than evaluations with less tax administrations:
- For evaluations with 3-4 tax administrations, the typical conclusion time was 63 weeks;
- For evaluations with 5-6 tax administrations, the typical conclusion time was 59 weeks;
- For evaluations with 7-8 tax administrations, the typical conclusion time was 68 weeks; and
- For the one evaluation with 9 tax administrations, the conclusion time was 58 weeks,
One possible description is that unlike an APA or MAP, each tax administration in ICAP normally performs their threat evaluation independently and does not require to reach a shared arrangement on a typical treatment. However, ICAP does include multilateral engagement and conversations amongst the tax administrations and in between the tax administrations and the taxpayer throughout the procedure. We would even more keep in mind that the reported conclusion times consist of time invested in optional problem resolution, which was pursued by 32% of individuals.
Due to all the foregoing, for ICAP to have actually closed its very first set of cases in approximately 61 weeks is an appealing outcome. And as the tax administrations end up being more knowledgeable about the procedure, it is most likely that typical times will just enhance.
Threat Evaluation Results
The data show that the evaluations were normally taxpayer beneficial, where 68% of all core location evaluations were discovered to be low-risk by all suitable tax administrations. However individuals were not provided a totally free pass. In reality, 60% of cases included a minimum of one tax administration that identified that an individual was “not low-risk” in a minimum of one core location. Hence, taxpayers that are thinking about getting involved need to make certain to prepare a comprehensive documents plan, and to be effectively prepared to provide an engaging story throughout multilateral calls with tax administrations.
The data likewise supply a helpful granular view into the threat evaluation results broken down by problem. Particularly, the data suggest that ICAP led to low threat results for:
- 90% of tangibles items threat evaluations;
- 75% of intangibles run the risk of evaluations;
- 88% of services run the risk of evaluations;
- 76% of funding threat evaluations; and
- 95% of long-term facility (” PE”) threat evaluations
It comes as not a surprise that a greater portion of evaluations including concrete items and services led to a low threat result than evaluations including intangibles or funding concerns. More notable, almost all PE threat evaluations (95%) led to a low threat result. This recommends that ICAP might be a helpful tool to reduce PE threat, especially because PE threat can be tiresome for multinationals to efficiently handle and typically falls outside the scope of APAs and other existing procedures to get certainty.
Optional Problem Resolution
Among the functions of the ICAP program is the optional problem resolution procedure. Here, after a tax administration has actually finished its threat evaluation, a taxpayer might have the chance to solve concerns within the ICAP procedure without the requirement for additional procedures. For instance, the problem resolution procedure may lead to the taxpayer “concurring [to] a transfer rates change and a matching change in ICAP, preventing time invested in audit and MAP.” In all, 32% of all cases included some type of problem resolution– and considered that just 60% of the cases even included a problem discovered to be “not low threat”– that recommends that majority of the suitable cases reached a problem resolution within ICAP.
The possibility of binding bilateral or multilateral resolution in ICAP through a quick procedure is an engaging proposal compared to alternative courses to certainty that take much, far more time. Still, the fast, truncated nature of ICAP indicates that the problem resolution procedure will undoubtedly be less extensive than domestic administrative treatments, MAPs, or APAs. While there are apparent and substantial benefits to a less-intensive procedure in regards to time, expense and restricting the scope of query, the disadvantages are that it might not permit the exact same chances for complete accurate advancement and thorough engagement with the tax administrations. This in turn will likely put a premium for getting involved taxpayers on advance preparation, robust however succinct documents and efficient advocacy to take advantage of the much shorter timeframes and truncated procedure. Even more, due to the fact that the taxpayer does not have control over the supreme result and might have less chances to challenge positions of impression, the problem resolution treatment appears finest matched for concerns where the taxpayer has versatility to the supreme result.
Conclusion
The early outcomes of ICAP are motivating, and show that the program is most likely useful for the best taxpayer that is effectively prepared. While a crucial drawback of ICAP is that it supplies just multilateral convenience, instead of legal certainty, the data suggest that it can typically accomplish such convenience for a wide variety of concerns and jurisdictions in a reasonably brief timeframe. Additionally, for specific taxpayers and concerns, the optional problem resolution procedure can be utilized to recognize and quickly solve prospective disagreements on terms that prevent double tax. From this viewpoint, ICAP can fill an essential space for some multinationals and deals for which APAs are not practicable due to time, expense, or the simple variety of nations or deals included.
Applications for the program are on-going, and accepted at one of the 2 yearly application due dates, March 31st and September 30th.
[1] For more details about the ICAP program, see our previous post “ ICAP, a New Tool in the Multiverse of Multinational Disagreement Management” (Might 2021).
[2] The core locations for evaluation are deals that include: 1) concrete items; 2) intangibles; 3) services; 4) funding; and 5) long-term facility concerns.