On November 15, 2024, the Organisation for Economic Cooperation and Development (OECD) released the 2023 statistics regarding global Mutual Agreement Procedure (MAP) programs. Global trends, as compared to last year, include a small decline in the number of new MAP cases, an uptick in the number of resolved cases, and a slightly longer time to process them. A broader examination of the U.S. statistics over time shows a diversifying profile for the U.S. MAP program, which reflects the increasingly integrated nature of global supply chains and the expansion of MAP programs of secondary treaty partners. 

Historically, the U.S. MAP program involved cases with a small number of countries. Although the OECD began reporting statistics for the U.S. MAP program in 2006, the treaty partner associated with each MAP case is only identified beginning in 2017. Additionally, where there is a small number of cases (i.e., less than five) between the U.S. and a treaty partner, that partner is not separately identified in the statistics, but, rather, that data is combined in a de minimis category with other similarly situated treaty partners. In 2017, U.S. MAP proceedings covering transfer pricing issues (i.e., attribution/allocation cases) were initiated with only 11 identified treaty partners, of which two treaty partners (India and Canada) accounted for almost 60 percent of those cases. Similarly, for non-transfer pricing cases (such as withholding, residency, permanent establishment, and limitations on benefits), U.S. MAP proceedings were initiated with only seven identified treaty partners and, again, approximately 60 percent of those cases were with two treaty partners (Germany and the United Kingdom).

In comparison, in 2023, U.S. MAP proceedings covering transfer pricing issues were initiated with 18 identified treaty partners, none of which comprised more than 18 percent of the new case inventory. With respect to non-transfer pricing cases, U.S. MAP proceedings were initiated in 2023 with 15 treaty partners, none of which comprised more than 16 percent of the new case inventory. This diversification occurred notwithstanding the general decline in U.S. MAP cases over time.

These trends are interesting, but not surprising in light of global developments. Business operations of multinational enterprises (MNEs) have become increasingly globalized over the past several years and intercompany transactions have likewise become more integrated. In response, tax administrations have grown increasingly aggressive and sophisticated in their examination of transfer pricing, permanent establishment, and other tax treaty issues. Changes in law, including changes as a result of the base erosion and profit shifting (BEPS) initiative and the emerging proliferation of minimum taxes as a result of the Pillar Two initiative, also materially raise the risk of double taxation. Absent effective mechanisms to avoid or resolve disputes, these developments threaten to overwhelm taxpayers and tax administrations. As a result, the OECD has focused on collaboration between tax authorities as to best practices and the establishment of standard dispute resolution procedures through the Forum of Tax Administration and BEPS Action 14. Thus, the expansion of U.S. MAP cases to a broader set of treaty partners is not surprising. Nor is the general decline in cases, which may reflect the application of agreed frameworks or benchmarks developed in prior MAP proceedings to local examinations or Advance Pricing Agreements (APAs), and which may be a temporary phenomenon as taxpayers and tax authorities adjust to recent changes in law.

While MAP proceedings remain an extremely valuable tool with which U.S. taxpayers can resolve disputes involving treaty partners, they are not without risks, especially in complex transfer pricing disputes. In 2023, 21 percent of U.S. transfer pricing MAP cases were closed either unagreed or partially agreed, resulting in some level of double taxation or taxation not in accordance with a treaty. The same statistic was 19 percent for 2022 and much lower for the preceding few years. It is unclear if the significant increase in unagreed or partially agreed cases reflects increased complexities and differing views in cases, or is just the result of the competent authorities clearing out inventories of old cases that could not be resolved. However, taxpayers should be mindful of these risks going forward, especially in cases involving tax treaties that do not include a mandatory binding arbitration provision.

While MAP proceedings focus on resolving disputes, APAs are used prospectively, whereby the taxpayer seeks to avoid a potential dispute by coming to an agreement with the tax authorities as to the nature and details of its transfer pricing. Although other dispute resolution initiatives such as the International Compliance Assurance Programme, or ICAP, have shown promise in providing tax certainty to taxpayers on transfer pricing issues, only APAs allow for a binding resolution that can cover many years in the future. The OECD statistics contain limited data concerning the U.S. APA program, but much more detail can be found in the annual reports prepared by the IRS. The most recent report was published on March 26, 2024, and shows that in 2023, almost one-third of all U.S. bilateral APAs requested or executed were with Japan. In sharp contrast, the 2023 OECD MAP statistics show less than five MAP cases between the U.S. and Japan (to the extent that cases exist, they would be in the de minimis category, whereby the U.S. and Japan had less than five outstanding cases, if any at all). It seems rational to conclude that there is an inverse relationship between the number of U.S.-Japan APAs and the number of U.S.-Japan MAP cases. That is, proactive and prospective efforts to obtain certainty with respect to transfer pricing inevitably reduces potential disputes. Indeed, the success of the Japanese approach to international transfer pricing disputes was highlighted in the recent OECD Awards, where the Japanese competent authority received the "APA Award for Focus on Dispute Resolution," as approximately 85 percent of the competent authority transfer pricing caseload was comprised of APA cases as opposed to MAP disputes.

Transfer pricing cases will continue to become more difficult over time due to the increasing complexity of global business operations as well as developments in the legal landscape. Taxpayers should consider U.S. APAs as a potential tool to achieve certainty and avoid disputes. Where disputes do arise, the U.S. MAP program can offer a practical remedy that decreases the likelihood of double taxation. Based on the data presented by both the OECD and the IRS, the U.S. and foreign tax authorities are increasingly open to participating in these programs, and these programs are typically a fruitful endeavor. 

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