Mutual Agreement Procedure – Key Highlights

July 2, 2025

Mutual Agreement Procedure

The Mutual Agreement Procedure (‘MAP’) is a formal process under Double Taxation Agreements (‘DTA’) that enables taxpayers to resolve international tax disputes arising due to differing tax treatments between two jurisdictions, which could result in double taxation. The primary objective of MAP is to provide taxpayers with relief from such double taxation by facilitating discussions and negotiations between the Competent Authorities (‘CA’) of the concerned countries.

Legal Basis of the Mutual Agreement Procedure

The legal foundation for MAP (Mutual Agreement Procedure) is established under:

Article 25 of the OECD Model Tax Convention, which provides the framework for MAP between contracting states
In the United Arab Emirates (‘UAE’), MAP is implemented through:

The DTA signed by the UAE with various countries.
The Multilateral Instrument (‘MLI’), which amends existing DTAs to incorporate BEPS-related minimum standards, including dispute resolution mechanisms

The UAE CA responsible for handling MAP cases is the Ministry of Finance (‘MoF’), acting independently of the Federal Tax Authority (‘FTA’).

Where multiple and distinct services are provided and the cost of each can be separately identified (even if charged as a single inclusive price) it is treated as multiple supplies. If the components have different VAT rates, the value of each must be determined separately to calculate the total VAT due.

When is MAP (Mutual Agreement Procedure) Available?

A taxpayer may initiate a MAP request under any of the following circumstances:

Double Taxation on Same Income:

When income is taxed in two jurisdictions due to differences in the application of treaty provisions.

Transfer Pricing Adjustments:

If the FTA or a foreign tax authority makes a transfer pricing adjustment that results in the same income being taxed in both jurisdictions.

Tax Residency Disputes:

Where there is a conflict in determining the tax residency of the taxpayer under different jurisdictions.

Permanent Establishment Reassessments:

If a tax authority reclassifies a taxpayer’s activities as creating a permanent establishment (‘PE’), leading to additional tax liability.

Multilateral Disputes:

Involving tax issues across multiple countries where coordinated resolution is required.

Need for MAP in UAE

MAP provides relief in cases of economic double taxation.
MAP also provides relief in cases where automatic relief, such as tax credits, tax exemption etc. are not available.
The interest Article of a tax treaty may permit interest arising in one Contracting State and paid to, and beneficially owned by, a resident of the other Contracting State to be taxed in both these States, with the tax charged in the source State limited to an agreed-upon rate.
Double taxation is then eliminated by the relief from double taxation Article, under which the residence State would generally allow a deduction or credit against its tax

How to File a MAP Claim

Requirements for Filing a MAP Request:

Full taxpayer details, including entity name, tax registration number (TRN), and contact information.
Information about related foreign entities involved in the dispute.
A clear description of the tax issue, including:

Nature of the adjustment or dispute
Background facts and transaction details
Financial years affected

References to specific articles of the applicable DTA that the taxpayer believes have not been correctly implemented.
Submission of all relevant documentation, such as:
- Transfer Pricing reports and analysis.
- Notices of tax assessments or adjustments.
- Rulings, correspondences with tax authorities, and any other supporting evidence.

MAP Process Steps

The process for handling MAP cases involves the following sequential steps:

Eligibility Assessment:

The UAE CA conducts an initial assessment to determine whether the MAP request is admissible under the applicable DTA.

Submission of MAP Request:

The taxpayer formally submits the MAP request to the UAE CA, including all required details and supporting documents.

Review by the UAE Competent Authority:

The CA reviews the merits of the case, may request additional information, and prepares for discussions with the foreign CA.

Unilateral or Bilateral Resolution:

Negotiations take place between the UAE CA and the foreign CA to arrive at a mutually acceptable solution. Resolution can be:

Unilateral, where the UAE resolves the issue without involving the foreign CA; or
Bilateral, involving agreement between both CAs.

Outcome of MAP

If an agreement is reached, the resolution is implemented via the FTA to provide relief to the taxpayer.
If no agreement is reached, the taxpayer retains the right to pursue domestic remedies, such as administrative appeals or court proceedings.

Drawbacks of the Mutual Agreement Procedure

MAP may take too long to complete
Taxpayer participation may be limited
Time limit under domestic law may make corresponding adjustments unavailable if those limits are not waived in the relevant tax treaty.

Time Limit for Mutual Agreement Procedure

The MAP request must generally be filed within three (3) years from the date of first notification of the action resulting in taxation not in accordance with the DTA.
This time limit aligns with the OECD BEPS Action Plan recommendations to ensure timely resolution of disputes.
The UAE CA retains the discretion to accept late claims under reasonable circumstances, considering the merits of each case.

Interaction with Domestic Remedies

Taxpayers cannot pursue MAP and court proceedings simultaneously. Filing a MAP request usually requires that domestic litigation be suspended or withdrawn.
Acceptance of the resolution reached under MAP requires the taxpayer to withdraw any ongoing domestic legal actions pertaining to the same issue.

Penalties related to MAP

Penalties directly related to the issue covered under MAP may be adjusted if the resolution alters the tax position.
Penalties for domestic compliance violations (e.g., failure to maintain Transfer Pricing documentation) are not covered under MAP and remain enforceable.
Taxpayers are generally required to pay the assessed tax during the MAP process. Refunds or adjustments are made only if the MAP results in a reduction in tax liability.

Multi-year periods

To avoid duplicate MAP requests and permit a more efficient use of the UAE CA’s resources, a taxpayer will be allowed to request a multi-year resolution via MAP for a recurring issue, provided that for each relevant year, the facts and circumstances of the issue are the same and the MAP request is submitted within the time limit specified in the DTA. Where a taxpayer submits more than one MAP request for the same issue over several years, the UAE CA will aim to deal with all such requests in a coordinated manner.

Arbitration

Some of the UAE’s DTAs provide access to arbitration for an issue that is unresolved via MAP. In circumstances where:

Arbitration is provided for under the relevant DTA; and
UAE CA is unable to reach an agreement with the CA of the other contracting state to resolve the issue via MAP within the time limit specified in the MAP article of the relevant DTA; and
No decision has been issued by a court or tribunal of the UAE or the other contracting state,the taxpayer may request the UAE CA to refer the unresolved issues to arbitration. Depending on the DTA, this may be a voluntary or mandatory provision and may be requested by either the CA of either contracting state or by the relevant person that submitted the MAP claim.

Mutual Agreement Procedure: Key Takeaways for Taxpayers

Ensure timely filing of MAP requests within the stipulated time limits.
Refer to relevant DTAs and treaty articles before filing.
Avoid pursuing MAP and court litigation simultaneously.
Maintain robust supporting documentation for all cross-border transactions.
Respond promptly to requests for additional information from the CA to avoid delays in resolution.