OECD’s Anti-Forum Shopping Plans Point to Need for MAP Reforms

Consistency matters in the world of international tax disputes. Taxpayers’ ability to “forum shop” to resolve tax controversy issues betrays this consistency, prompting the OECD and various jurisdictions to work together on establishing a mechanism that curbs this practice.

OECD representatives have made clear that once a taxpayer chooses their battleground—whether it’s litigation or an out-of-court resolution through competent authority—they need to stick to it.

In the meantime, jurisdictions should consider ways to improve their competent authority frameworks. This can include adopting rules outlining how the mutual agreement procedure, or MAP, interacts with domestic remedies; ensuring consistent transparency standards; and offering mandatory arbitration.

Litigation vs. Competent Authority

When it comes to resolving transfer pricing and other international tax disputes, litigation and competent authority procedures represent two distinct paths.

Litigation is an adversarial process that unfolds in domestic courts. In contrast, the competent authority procedures set out in the MAP article of most tax treaties (normally Article 25) aim to reduce or eliminate double taxation and emphasize cooperation and negotiation between tax administrations.

The competent authority process seeks to avoid double taxation and resolve conflicts amicably. Although MAP is designed to provide a binding resolution, taxpayers who are dissatisfied with the competent authorities’ decision might reject it and preserve their right to pursue other avenues of relief under domestic laws—including litigation.

Rejecting Forum Shopping

The OECD has discouraged forum shopping, which can undermine tax treaty objectives and international cooperation. To address this, the OECD strongly encourages using MAP early.

As outlined in the Base Erosion and Profit Shifting Action Plan—particularly Action 14, relating to dispute resolution—the OECD discourages taxpayers from bypassing competent authorities or unfairly participating in the process.

Through its guidelines and peer review frameworks, the OECD advocates stricter timelines, increased transparency, and stronger cooperation between jurisdictions to ensure MAP remains a reliable and readily accessible avenue for resolving tax disputes.

Practical Implications

Although rejecting forum shopping sets a clear policy direction, its practical impact is far less certain. Enhanced cooperation through the MAP has led to more efficient dispute resolution in some cases by avoiding both double taxation and costly litigation.

This is important because domestic dispute resolution channels, even when successful, typically don’t bind the other jurisdiction. Taxpayers still may face the risk of double taxation despite receiving a favorable result in one country.

However, some jurisdictions can improve their competent authority framework to be a more reliable deterrent to forum shopping in several ways.

First, to ensure meaningful access to MAP, jurisdictions should adopt rules that outline how MAP interacts with domestic remedies. Without such clarity, taxpayers are left to navigate a murky landscape. For example, rules should explain whether taxpayers must exhaust domestic administrative remedies before requesting MAP, or whether MAP can proceed concurrently with the domestic appeal process.

The US offers a good example in this regard. Its rules allow taxpayers to request competent authority assistance while simultaneously pursuing IRS appeals, with procedures that help taxpayers understand how the two processes intersect. Many other jurisdictions lack such coordination.

Second, access to MAP, enforcement of recommended timelines, and transparency standards remain inconsistent at best, with wide disparities across jurisdictions. Reforms targeting these issues would make the competent authority process more predictable and therefore attractive for taxpayers.

Third, jurisdictions should provide for mandatory arbitration as part of the competent authority process. Under certain tax treaties, if competent authorities fail to reach agreement within a set timeframe—typically two years—the taxpayer may request binding arbitration.

As global tax controversy becomes more complex, particularly as Pillar Two and other reforms become a reality, ensuring timely resolution through arbitration or other similar avenues will be critical to maintaining taxpayer confidence.

But this safeguard isn’t universally available. Many jurisdictions either don’t allow arbitration at all or impose procedural hurdles that render it ineffective in practice. As a result, taxpayers could spend years in prolonged bilateral negotiation with no recourse and no resolution of the matter.

In efforts to eliminate forum shopping, care must be taken not to overcorrect, because certain taxpayers may not have the option to seek MAP relief at certain stages of a controversy or until after the exhaustion of domestic options. For instance, once the IRS designates a case for litigation in the US, it could foreclose access to the competent authority process entirely.

Looking ahead, the effectiveness of any effort to curb forum shopping will depend on striking the right balance—providing easy access to coordinated resolution options such as MAP, while discouraging the tactical bypassing of certain domestic procedures.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

David Farhat is tax partner at Skadden, Arps, Slate, Meagher & Flom with focus on international tax planning and dispute resolution.

Eman Cuyler is a tax associate at Skadden, Arps, Slate, Meagher & Flom with focus on federal tax controversy matters and tax planning for multinational corporations.

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