Foreign tax authorities may use methods of taxation that differ from those used by the U.S. As a result, some taxpayers can be taxed twice on income. Economic double taxation may also occur when two or more countries tax related entities on the same income. Domestic tax laws can eliminate double taxation by:

The U.S. may enter into a tax convention, or tax treaty, with another country to avoid double taxation. A treaty can avoid double taxation by:

The U.S. has tax treaties with the countries listed in Exhibit 4.60.3–1.

The IRS has mutual agreement procedures with U.S. possessions that serve to avoid double taxation. These agreements do not allocate taxing rights, but serve to limit the authority of designated tax agencies. The agreements also help to resolve problems that may arise from inconsistent positions taken by the IRS and the possession tax agencies. Rev. Proc. 89–8 provides the IRS and taxpayers with guidelines to follow for resolving issues with the tax authorities of Puerto Rico, Virgin Islands, American Samoa, or Guam.

A tax treaty requires the designation of a competent authority for each country that is a party to the treaty. The respective competent authorities administer the provisions of the treaty. This authority may be delegated to one or more subordinate officials.

The Director, International is the U.S. Competent Authority for all U.S. tax treaties. The Director, International is also responsible for the execution of the Agreements on Coordination of Tax Administration with certain U.S. possessions.

Tax Treaty serves as the staff for the Director, International on tax treaty matters. Tax Treaty administers mutual agreement procedures for U.S. tax treaties and agreements with the U.S. possessions.

The MAP process provides assistance to taxpayers who are subject to double taxation by the U.S. and another country that is a party to a tax treaty with the U.S. The competent authorities of the contracting states shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of a tax treaty. The U.S. Competent Authority, treaty partner, field director (LMSB — Director of Field Operations or SBSE — Area Director), and taxpayer are all part of the MAP process.

The taxpayer initiates the MAP process by making a written request to the U.S. Competent Authority in accordance with the provisions of Rev. Proc. 96–13. After reviewing the request, the U.S. Competent Authority may initiate negotiations with the affected treaty partner to protect U.S. interests. Rev. Procs. 89–8 and 96–13 require the taxpayer to supply the information needed by the U.S. Competent Authority to pursue this process. Failure to provide this information can result in denial of MAP consideration for the taxpayer making the request.

If the taxpayer does not accept an agreement made by the U.S. Competent Authority with a treaty partner, the taxpayer may withdraw the MAP request and pursue other administrative and judicial remedies.

Tax Treaty, serving as the staff of the U.S. Competent Authority:

Tax Treaty denies assistance, or ceases to provide assistance to taxpayers if:

The field director, acting in a support and advisory role:

The Accelerated Competent Authority Procedure (ACAP) is used by taxpayers for resolving issues already under competent authority consideration that recur in subsequent years. This procedure is available only when an identical issue occurs in the subsequent years and the issue is raised by the Service. Refer to Rev. Proc. 96–13, section 7.06. However, ACAP is not subject to accelerated issue resolution (AIR) process limitations provided in Rev. Proc. 94–67, 1994–2 C.B. 800.

The taxpayer may request the procedure at the time of filing, or any time thereafter, but before the conclusion of the mutual agreement process. In filing the request, the taxpayer sends the request in accordance with Rev. Proc. 96–13 to the Director, International. The request must contain a written statement that the taxpayer agrees:

After reviewing the taxpayer's request, Tax Treaty will:

The field director, after consulting with Tax Treaty about the ACAP request, will:

Taxpayers are afforded administrative and/or judicial remedies regardless of whether an issue is U.S. or foreign initiated.

For foreign initiated issues, the U.S. competent authority’s decision about a refund or tax credit is final and not subject to administrative review. For U.S. initiated issues, taxpayers should exhaust available MAP remedies because judicial determinations are generally final. If the U.S. Competent Authority accepts a MAP request after a court decision, MAP activity will be limited to persuading the treaty partner to grant a correlative adjustment.

The U.S. Competent Authority will not accept, or continue to consider a taxpayer’s request for assistance if it includes an issue pending in a U.S. Court, or designated for litigation unless permission is granted by Associate Chief Counsel (International).

The Simultaneous Appeals Competent Authority Procedure (SACAP) is a process that allows taxpayers to request the services of Appeals and the U.S. Competent Authority simultaneously. The procedure serves to expedite settlement of U.S. initiated double tax issues. Refer to Rev. Proc. 96–13, section 8.

This procedure may be used when:

This procedure may be used at any time after requesting competent authority assistance, but before the U.S. position paper is communicated to the foreign competent authority.

This procedure may be granted after the U.S. position paper is forwarded to the foreign competent authority if:

A request for the SACAP is granted only with the consent of Chief Counsel when:

The taxpayer may address the SACAP request to the U.S. competent authority as:

The taxpayer must state whether the periods included in the request were previously protested to Appeals. SACAP does not give taxpayers the right to further review of an issue previously considered by Appeals.

The taxpayer may withdraw the request for SACAP at any time. This procedure does not affect the taxpayer’s right to Appeals consideration of other unresolved issues. The other issues may be pursued without waiting for resolution of the issue under competent authority consideration.

The Chief, Appeals forwards a copy of the request to the appropriate Director, Appeals who assigns an Appeals Officer to the case. The assigned Appeals Officer will:

The U.S. Competent Authority has jurisdiction for the issue when SACAP is involved and is responsible for:

The U.S. competent authority, the Chief, Appeals, or the appropriate Director, Appeals may terminate or deny the SACAP if it is determined to be prejudicial to the mutual agreement procedure or the administrative appeals process.

A taxpayer may request a conference with the U.S. competent authority and/or the Chief, Appeals to discuss the denial or termination.

The taxpayer may refer the issue to Appeals for further consideration if:

An advance pricing agreement (APA) is an agreement between the Service and a taxpayer on a transfer pricing method (TPM). This methodology may be applied to any apportionment or allocation of income, deductions, credits, or allowances between or among two or more organizations, trades, or businesses owned or controlled, directly or indirectly by the same interests.

The APA process is designed to be a flexible problem-solving process, based on cooperative and principled negotiations between taxpayers and the Service. The taxpayer initiates the request in accordance with Rev. Proc. 96–53. The APA Program is a component of the Office of the Associate Chief Counsel (International). Refer to CCDM 42.10 for the procedures for negotiating and entering into APA's and otherwise conducting the APA Program.

If an APA involves transactions with a related entity in a treaty country, the taxpayer may request competent authority consideration to give effect to an APA on a bilateral basis. If this occurs, coordination is required between the APA staff within Chief Counsel and Tax Treaty.

Section 7.05 of Rev. Proc. 96–13 provides that any written agreement entered into by a taxpayer at Counsel is treated as a binding agreement in any subsequent competent authority negotiations. This does not include unilateral APA's.

Tax Treaty is responsible for coordinating the following:

The APA Staff’s responsibilities include:

Field director personnel will attend and participate in bilateral APA pre-filing meeting(s).

Field director personnel will participate in the evaluation of the TPM and the development of the U.S. negotiating position.

A limitation on benefits article (LOB) is included in all new bilateral U.S. tax treaties to prevent residents of third countries from obtaining unintended benefits through "treaty shopping." The third country residents may seek unintended benefits because the third country does not have a tax treaty with the U.S., or to circumvent a less favorable tax treaty that the U.S. has with the third country. International Examiners may direct questions about these procedures to Tax Treaty at tel. (202) 874–1550.

The LOB article in most U.S. treaties sets forth a series of objective tests, or safe harbors. The presumption underlying each test is that a taxpayer satisfying the requirements of any of these tests does not have a treaty shopping purpose for locating in a treaty partner country. Taxpayers must meet a residency test and one of the LOB article’s safe harbor tests in order to qualify for treaty benefits. Other requirements may apply in particular situations. In the case of hybrid entity structures, the requirements of IRC section 894(c) and the regulations thereunder must also be satisfied.

The LOB treaty article also contains a subjective test. The subjective test provides that a resident of one of the States not otherwise entitled to the benefits of the convention under the objective tests may be granted treaty benefits if the competent authority of the State from which benefits are sought consents to this determination .

Before making a request for an LOB determination from the U.S. Competent Authority, the taxpayer must first determine if it meets any of the objective tests, or safe harbors, contained in the existing tax treaty. If it does not pass any of these tests, the taxpayer should send a written request for an LOB determination to the Director, International. Refer to Section 3.08 of Rev. Proc. 96–13.

The taxpayer may withdraw the request at any time during the process.

Tax Treaty will:

In the absence of any determination by the U.S. Competent Authority, the International Examiner will:

If there has been a determination by the U.S. Competent Authority, the International Examiner will:

International Examiners may direct any questions about these procedures to Tax Treaty at tel. (202) 874–1550.

Rev. Proc. 99–32, which superseded Rev. Proc. 65–17, addresses situations where an adjustment is made under IRC section 482 ( "primary adjustment" ) that requires a secondary adjustment to conform the taxpayer’s accounts to reflect the primary adjustment. This Rev. Proc. allows U.S. taxpayers to avoid the Federal income tax consequences of a secondary adjustment that would otherwise result from a primary adjustment.

Rev. Proc. 99–32 accomplishes the following:

The provisions of Rev. Proc. 99–32 apply to U.S. taxpayers in the following situations:

The field director or appeals office with jurisdiction over the case is responsible for determining:

A U.S. taxpayer seeking the benefits of Rev. Proc. 99–32 must file a written request with the field director before closing action is taken on the primary adjustment.

In applying the provisions of Section 5.01 of Rev. Proc. 99–32, the term "closing action" includes the first occurrence of any of the following:

When an IE proposes an IRC section 61, 162, or 482 adjustment, the taxpayer will be advised of the following:

The above provisions refer to several terms, defined below:

If the examination of the primary taxpayer results in adjustments under IRC section 482, the examination of the correlative U.S. taxpayer is conducted concurrently by the IE.

If the correlative adjustment affects the U.S. tax liability of the correlative taxpayer for any pending tax year, a separate report covering those years should be prepared by the IE. The report should be prepared concurrently with the primary report, with the understanding that it may be sent to the correlative taxpayer.

A completed Form 1308 (Recommendation to Delay Allowance of Overpayment) should be attached to the return of the correlative taxpayer and a completed Form 3198 (Special Handling Notice) indicating this action should be attached to the case file. This will ensure that overpayments resulting from the correlative adjustments are not refunded to the taxpayer prematurely.

Rules regarding the unauthorized disclosure of information apply to IRC section 482 adjustments, despite the relationship between primary and correlative taxpayers. The correlative report should not disclose tax return information of the primary taxpayer except to the extent necessary to explain the correlative adjustment.

The report to the primary taxpayer will include one of the following statements:

Taxpayers who seek correlative relief for foreign initiated adjustments should make a request to the U.S. Competent Authority for assistance. However, if the adjustment involves years under the jurisdiction of a field director or Appeals, taxpayers should seek to obtain relief from these offices. If the adjustment involves a reallocation of income or deductions involving a related person in a country that has a tax treaty with the U.S., the taxpayer should be advised to contact Tax Treaty. Failure to request assistance from the U.S. Competent Authority may result in denial of correlative relief with respect to the issue, including any otherwise available foreign tax credits.