United States - France Competent Authority Memorandum of Understanding
The competent authorities of the French Republic and of the United States of America hereby enter into the following agreement (“the Agreement”) regarding the application of the arbitration procedure under paragraphs 5 and 6 of Article 26 (Mutual Agreement Procedure) of the Convention Between the Government of the United States of America and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital signed at Paris on August 31, 1994, as Amended by the Protocols Signed on December 8, 2004, and January 13, 2009 (“the Convention”). The Agreement is entered into under paragraph (a) of the Memorandum of Understanding between the French Republic (France) and the United States of America signed on January 13, 2009 (the "Treaty MOU"). The purpose of this Agreement is to provide guidance under which the U.S.-France arbitration procedure will operate.
1. Competent Authority Assistance in General
a. A request for competent authority assistance must comply with the requirements as set out for the United States in Revenue Procedure 2006-54, or subsequent guidance, and for France in the Official Tax Bulletin 14F-1-06 of 23 February 2006 or any applicable subsequent guidance.
b. Taxpayers shall submit their requests for competent authority assistance to the Contracting State of which the person is a resident. In situations involving allocation of income or deductions between related persons, each person will send its request to the Contracting State of which it is a resident.
2. Cases eligible for arbitration
a. Arbitration is generally available in respect of any case where the competent authorities have endeavored but are unable to reach an agreement under Article 26.
b. Once a case is accepted into the mutual agreement procedure, neither competent authority will cease unilaterally to consider a case, except for the circumstances described in paragraph 3.
3. Cases ineligible for arbitration
a. Arbitration is not available for cases which a competent authority has not accepted, or in which a competent authority ceases to provide assistance, in accordance with the Convention, the Protocol or published guidance.
i. The French competent authority will generally not accept a request for competent authority assistance or will generally cease providing assistance to a taxpayer, and thus not provide for arbitration if the taxpayer does not comply with the requirements or under circumstances as described in the Official Tax Bulletin 14F-1-06 of 23 February 2006 (or any applicable subsequent guidance).
ii. The U.S. competent authority generally will not accept a request for competent authority assistance or will cease providing assistance to a taxpayer, and thus not provide for arbitration in the circumstances described in section 12.02 (Denial of Assistance) of Revenue Procedure 2006-54 (or any applicable subsequent guidance). In addition, the U.S. competent authority will not provide for arbitration for a case in which the taxpayer has reached a settlement on the issue with IRS Appeals (including an Appeals settlement through the Appeals arbitration process) or with Chief Counsel pursuant to an executed closing agreement or other written agreement such as Form 870-AD.
b. Arbitration is not available for cases that have been accepted for competent authority consideration, but for which the competent authorities agree that the particular case is not suitable for determination by arbitration pursuant to paragraph 5 (b) of Article 26 of the Convention. This agreement may, depending on the circumstances of the particular case, be either a final decision, or a temporary deferral as is contemplated in paragraph 5.a.i below. The competent authorities will consider such agreement, for instance, in the following scenarios:
i. There is an inordinate and/or repeated delay in the response of a taxpayer to a request for information; or
ii. In the event the taxpayer dockets the case for which it requested competent authority assistance for litigation, the case will be considered as not suitable for arbitration if the court does not allow for suspension of the litigation proceedings until such a time as a competent authority resolution has been reached.
iii. A temporary deferral of arbitration proceedings may also be considered in the case of an administrative appeal if the appeals proceedings have not been suspended.
c. A request for a mutual agreement regarding an Advanced Pricing Agreement is not eligible for an arbitration procedure.
4. Commencement Date
a. Within 60 days of receipt of a MAP request for assistance each competent authority will review the request and verify whether it contains the information necessary to undertake substantive consideration for a mutual agreement, pursuant to paragraph 6(b) of Article 26 of the Convention.
b. If a competent authority determines that the request for assistance is not complete, that competent authority will inform the taxpayer in writing within 60 days of receipt of the request, what information is necessary consistent with Rev. Proc. 2006-54 (or subsequent guidance) or the information required under Official Tax Bulletin 14F-1-06 of 23 February 2006 (or subsequent guidance).
c. Once complete information is provided, each competent authority will inform the other competent authority of the date it received the information necessary to undertake substantive consideration for a mutual agreement. The latter of these dates will be the Commencement Date. (See paragraph 6(b) of Article 26 of the Convention.)
d. Contemporaneously, the competent authorities will confirm with each other that each has received the same information.
e. When the Commencement Date is established,
i. the competent authorities will exchange correspondence with each other confirming the Commencement Date and the date the arbitration proceedings potentially shall begin for any subsequently necessary arbitration, and
ii. each competent authority will inform the concerned persons resident in its territory in writing of the Commencement Date and the date the arbitration proceedings potentially shall begin for any subsequently necessary arbitration.
5. Date Arbitration Proceedings Begin
a. Arbitration proceedings in a case shall begin on the later of:
i. Two years after the Commencement Date of that case, unless both competent authorities have agreed prior to the date arbitration proceedings begin to a different date, and
ii. The earliest date upon which the nondisclosure agreements have been received by both competent authorities. (See paragraph 6(c) of Article 26 of the Convention.)
b. If the competent authorities agree to begin arbitration proceedings on a date different from that generally required, then the competent authorities will confirm that date in writing to each other and to the concerned persons resident in their territory.
6. Board member appointment
a. Each competent authority will appoint a member to the arbitration board by sending a written communication indicating their appointment to the other competent authority within 90 days of the date on which the arbitration proceedings begin. (See paragraph (e) of the Treaty MOU.)
b. If either competent authority fails to appoint a member, the appointed board member shall contact the competent authority that appointed him or her. That competent authority shall contact the highest-ranking member of the Secretariat at the Centre for Tax Policy and Administration of the Organization for Economic Co-operation and Development (OECD) who is not a citizen of either France or the United States, who shall appoint a board member by written notice to both countries within 60 days of the date of such failure.
c. If the board members appointed by the competent authorities fail to agree upon the third member within 60 days of the date of the second such communication, the appointed board member(s) shall be dismissed and each competent authority shall appoint a new member of the board within 30 days of the dismissal of the original members. (See subparagraph (e) of the Treaty MOU.)
d. The competent authorities will not appoint current tax administration employees, or former tax administration employees, within two years of their last employment in the tax administration.
e. The competent authorities will appoint members who have significant international tax experience. They need not, however, have experience as either a judge or arbitrator. Every member of an arbitration board shall be impartial and independent of the contracting states and the Concerned Persons at the time of accepting an appointment to serve, and shall remain so during the entire arbitration proceeding and for a reasonable time thereafter.
f. If a board member is unable to fulfill his or her duties the chair will notify the competent authorities. The competent authority that selected the board member who is unable to fulfill his or her duties will select a substitute board member within 21 days.
g. If any board member is unable to fulfill his or her duties the competent authorities will consult with the remaining board members to determine whether a new timetable is necessary.
7. Nondisclosure Issues
Each concerned person and their authorized representatives or agents must agree prior to the beginning of arbitration proceedings not to disclose to any other person any information received during the course of the arbitration proceeding from either competent authority or the arbitration board, other than the determination of the board.
8. Identification of Chairs
a. The competent authorities will identify and jointly agree to 5 – 10 persons who are qualified and willing to serve as a Chair for an arbitration board.
b. The competent authorities will review and revise this list as necessary every three years.
c. Persons to be identified for this list will have significant international tax experience. They need not, however, have experience as either a judge or arbitrator. Consistent with paragraph 6(e), the Chair shall be impartial and independent of the contracting states and the Concerned Persons at the time of accepting an appointment to serve, and shall remain so during the entire arbitration proceeding and for a reasonable time thereafter.
d. The Chair of a particular arbitration board will be considered appointed upon that person’s execution of a Declaration of their intent to so serve, such Declaration to be in a form agreed to by the competent authorities.
9. Proposed Resolution, Position Papers and Reply Submissions
a. Each competent authority will be permitted to submit, within 60 days of the appointment of the Chair of the arbitration board, a Proposed Resolution paper, not to exceed five pages, describing the proposed disposition of the specific monetary amounts of income, expense or taxation at issue in the case, and a supporting Position Paper, not to exceed 30 pages, plus annexes, for consideration by the arbitration board.
b. The Proposed Resolution should be drafted in a form that provides a resolution for each specific amount of income, expense or tax at issue in the case. The Proposed Resolution may also address any related issues identified by a taxpayer’s request for competent authority assistance, that are required to be resolved to determine the specific amount of income, expense or tax, for example, the threshold existence of a permanent establishment (see paragraph 13 below). Thus, as may be appropriate in a particular case, the competent authorities may agree that a Proposed Resolution (or portion thereof) need not be “an amount of income, expense or tax”.
c. In the event that only one competent authority submits a Proposed Resolution within the allotted time, then that Proposed Resolution shall be deemed to be the determination of the board in that case and the Proceeding shall be terminated. (See subparagraph (g) of the Treaty MOU.)
d. Each competent authority may, if it so desires, submit a Reply Submission, not to exceed 10 pages, to the board within 120 days of the appointment of the Chair, to address any points raised by the Proposed Resolution or Position Paper submitted by the other competent authority. (See subparagraph (g) of the Treaty MOU.)
e. In a particular case, the competent authorities may agree on different page limitations for the Proposed Resolutions, Position Papers or Reply Submissions.
f. Any annex to a Position Paper must be a document previously made available for the competent authorities to use in negotiation.
g. Unless otherwise agreed, the competent authorities will send to the Chair four copies of each document submitted to the board, for distribution to the board members and other competent authority.
h. Within 90 days of the appointment of the chair, the presenter of the case may submit a position paper (the Presenter Position Paper) not to exceed 30 pages, plus annexes. The positions, arguments, or analyses raised in the Presenter Position Paper must be positions, arguments, or analyses previously provided to the competent authorities for their consideration in negotiation prior to the beginning of arbitration. Any annex to the Presenter Position Paper also must be a document made available to the competent authorities for their consideration prior to the beginning of arbitration.
i. With regards to paragraph h), any Presenter Position Paper should be sent so that each competent authority receives it simultaneously. The competent authority initiating the MAP will deliver copies of the Presenter Position Paper to the board, according to the instructions of the chair no later than 5 days after receipt of the original Presenter Position Paper. Each competent authority is entitled to submit comments of no more than 10 pages on the Presenter Position Paper to the board. Such comments must be delivered to the board according to instructions of the chair and to the other competent authority no later than 30 days after the receipt of the original Presenter Position Paper (within 120 days of the appointment of the Chair).
10. Requests for Additional Information
a. Additional information may be submitted to the board only at its request, and copies of the board’s request and the competent authority’s response shall be provided to the other competent authority on the date on which the request or the response is submitted. (See subparagraph (g) of the Treaty MOU.)
b. The board may request additional information that consists only of existing documents and may not request new or additional analyses.
c. The board may establish a deadline for responding to the request.
11. Multiple Issues
a. A case may consist of multiple issues. The existence of multiple issues in a case will ordinarily be identified by the assertion of multiple discrete proposed adjustments arising from an audit (or if there is no adjustment, multiple discrete denied credits or claims). The Proposed Resolution and Position Paper should address each issue separately. However, in an appropriate case, the competent authorities may agree to a different presentation of issues to the board, for example, where interrelated adjustments have been proposed.
b. The board will make a determination on each issue separately. Thus, the final decision of the board may be comprised of portions of each of the Proposed Resolutions submitted by the competent authorities.
12. Permanent Establishment Cases
Each competent authority is allowed to submit a Proposed Resolution and Position Paper that takes alternative positions. Thus, a competent authority may take the position that no permanent establishment exists. However, the competent authority may also propose an amount of income to be allocated to a permanent establishment, if the board determines that a permanent establishment exists.
13. Competent Authority Initiating the Mutual Agreement Procedure
a. For requests for competent authority assistance concerning an adjustment raised in either France or the United States, the competent authority of the country that proposed the adjustment (or in the case where there is no adjustment, denied the credit or claim) is considered the competent authority initiating the Mutual Agreement Procedure.
b. Meeting facilities, related resources, financial management, other logistical support, and general administrative coordination of the Proceeding will be provided, at its own cost, by the competent authority that initiated the Mutual Agreement Procedure. (See subparagraph (g) of the Treaty MOU.)
Pursuant to paragraph (n) of the Treaty MOU, upon confirmation of appointment of the arbitration board, each board member must agree in a statement to abide by and be subject to the confidentiality and nondisclosure provisions of Article 27 of the Convention and the applicable domestic laws of the Contracting States, as well as to this Agreement and the Arbitration Board Operation Guidelines.
15. Communication between the Board and the Competent Authorities
a. Before the chair is appointed, the competent authorities will send any correspondence concurrently to both board members.
b. After the chair is appointed, unless otherwise agreed between the chair and competent authorities, the competent authorities will send any correspondence to the chair. Similarly, the chair will send any correspondence concurrently to the competent authorities.
c. No competent authority will have any ex parte communications, except for administrative or logistical reasons, with a board member.
d. All communication, except for logistical matters, between the competent authorities and the board must be in writing. Written communication by fax or email is allowed, however, no information that may identify the taxpayer(s) may be included in an email. Express mail or air mail shall be used for all correspondence other than that sent via facsimile or email.
16. Fees and Expenses
a. The fees and expenses will be borne equally by the competent authorities. (See subparagraph (o) of the Treaty MOU.)
b. Neither competent authority will charge a taxpayer for costs associated with arbitration.
c. The fees of members of the arbitration board will be set at the fixed amount of $2000 (two thousand United States dollars) or the equivalent in euro per day, subject to modification by the competent authorities. (See subparagraph (o) of the Treaty MOU.)
d. In general, each board member will be compensated for no more than seven days of work on the arbitration (e.g., three days of preparation, two meeting days and two travel days). As a general rule, the competent authorities envision that the board will be able to complete their joint consideration of the case through telecommunications.
e. In general, the expenses of members of the arbitration board will be set in accordance with the International Centre for Settlement of Investment Disputes Schedule of Fees for arbitrators. (See subparagraph (o) of the Treaty MOU.)
17. Board Determination
a. The determination of the board will be decided on the basis of a majority vote, and shall constitute a resolution by mutual agreement under Article 26 (Mutual Agreement Procedure) of the Convention and shall be binding on both competent authorities with respect to that case.
b. Within 30 days of receiving the determination each concerned person(s) must accept the determination in writing sent to the competent authority of the Contracting State of which the concerned person is a resident. If the concerned persons fail to accept the determination within 30 days, the determination is considered rejected.
c. If any concerned person fails to advise the competent authority within that period of time, the determination will be considered not to have been accepted and the case will be closed.
d. The treatment of any interest or penalties will be determined by applicable domestic law of France or the United States. (See subparagraph (m) of the Treaty MOU.)
18. Terminating Proceedings
a. If a taxpayer terminates an arbitration proceeding by withdrawing its request for assistance, then the competent authorities will exchange letters to close the case.
b. If a taxpayer terminates an arbitration proceeding by withdrawing its request for assistance, the Taxpayer will not ordinarily be allowed access to the competent authority procedures for the same matter and same years.
Any due date which falls upon a weekend or holiday for either competent authority will be extended to the next calendar day which is a business day for both competent authorities.
For the French Republic For the United States of America
Mr Christian Comolet-Tirman
Deputy Director (International) Deputy Commissioner (International)
Large Business and International Division