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International Practice Units – Competent Authority

In recent months, the Internal Revenue Service (IRS) Large Business and International Division (LB&I) has issued a variety of international tax practice “units” as part of its process to improve tax compliance from identified groups of business taxpayers. The overall process also includes short descriptions of respective “campaigns” and briefly describes the agency’s designated, tailored treatment or treatments for each campaign.

Most recently, it issued a unit on the mutual agreement procedure (MAP), commonly referred to as the Competent Authority Process under bilateral tax treaties (Doc Control No. ISO/P/01_07_03-01). The purpose of the unit is to provide IRS examiners (for the most part, the unit does not address foreign-initiated adjustments) with clear guidance on their responsibility in situations where proposed adjustments will be made in a context in which the taxpayer could potentially face double taxation, consistent with the most recent revenue procedure (Rev. Proc.) 2015-40. The unit also provides a helpful checklist for taxpayers in such situations.

The unit amplifies the guidance in Rev. Proc. 2015-40 with respect to both issues arising in Advance Pricing and Mutual Agreement (APMA) and Treaty Assistance and Interpretation Team (TAIT) (for non-transfer pricing issues). The discussion is consistent with current practice. Critical issues addressed include the following.

  • Where double taxation may arise:

    • Transfer pricing adjustments

    • Potential existence of a permanent establishment (PE) and income attributable to a PE

    • Source of income

    • Characterization of income (e.g., whether a payment is business profits or a royalty)

    • Timing of income

  • Protective measures that must be taken by the taxpayer to preserve availability of MAP

  • Examples of processes to be followed by examiners to protect the interests of both the fisc and the taxpayer

  • Accelerated Competent Authority Procedures to apply results to subsequent years

  • Simultaneous appeals procedures

  • Coordination with litigation

Practice Point: The unit itself is a practice tip, as it provides a good checklist of reminders as to the various “gotchas” that can befall taxpayers in this area. For example, the unit provides reminders that competent authority requests or treaty notifications must be made within certain time limits that may vary by treaty. Additionally, the unit reiterates that certain agreements with the IRS or a foreign tax authority may preclude or limit access to the competent authority process.


© 2018 McDermott Will & Emery


About this Author

Mark P. Thomas, McDermott Will Emery, civil tax controversy attorney, transfer pricing lawyer, international taxation planning legal counsel

Mark P. Thomas, PC, advises clients on all aspects of taxation, including complex civil tax controversies and litigation, transfer pricing, and domestic and international tax planning.

Mark has extensive experience in resolving a broad spectrum of domestic and international tax matters at all stages of a dispute, including US Internal Revenue Service (IRS) examinations, administrative appeals and litigation. Where appropriate, he has utilized collaborative dispute resolution tools such as advance pricing and pre-filing agreements, and the...


Cym H. Lowell is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Houston office.

Cym advises multinational companies and high-net-worth individuals based in the United States and around the world on a broad spectrum of tax planning and controversy matters.  He is Vice-Chairman of the International Chamber of Commerce Taxation Commission (based in Paris), as well as a member of the Business and Industry Advisory Committee to the OECD (also based in Paris) and U.S. Council of Business.  On behalf of his clients, Cym has handled transfer pricing cases involving millions to billions in proposed adjustments.  He has also structured advance pricing agreements on a global basis and advised clients on a full range of international tax matters.