Critical Evaluation of Action 14 Recommendations and the Suggested Way Forward for Singapore

Abstract

The final report on Action 14 of the Base Erosion and Profit Shifting (BEPS) project, Making Dispute Resolution Mechanisms More Effective presents a commitment by countries to implement certain “minimum standards” on dispute resolution. In many ways, Action 14 is the linchpin to the success of the entire BEPS project. To implement the significant changes developed under the BEPS project and make certain that there is neither unintended double taxation nor double non-taxation, there must be a strong and effective mechanism in place when disputes do (inevitably) arise. While the goal of the BEPS project is to create a more cohesive international tax framework, it would be naive to assume that governments will suddenly stop having disagreements over how a particular transaction should be taxed or how a treaty provision should be applied. Indeed, we could see more disputes if countries do not implement the BEPS recommendations in their domestic law in a broadly consistent manner. Therefore, it is of utmost importance that the implementation of the suggested BEPS proposals is complemented by a stronger and more efficient dispute resolution mechanism to ensure certainty for businesses. This research paper provides an overview of the existing Mutual Agreement Procedure (MAP) framework in Singapore and other selected Asian countries and the practical experiences around it. It also discusses the gap analysis for these countries (existing framework in these countries vis-a-vis the minimum standards and best practices prescribed under Action 14). The paper then focusses on the ‘mandatory arbitration’ as recommended under Action 14 including an overview of the already existing arbitration systems. This section also seeks to analyse the practical experience of arbitration in other countries and evaluates arbitration as an additional dispute resolution mechanism for Singapore. Finally, we analyse the implications of the multilateral instrument developed as part of Action 15 and the joint audit as an alternative dispute resolution mechanism.