SECTION 3. GENERAL CONDITIONS

UNDER WHICH THIS PROCEDURE APPLIES

.01 General . The exclusions, exemptions, deductions, credits, reductions in rate, and other benefits and safeguards provided by treaties are subject to conditions and restrictions that may vary in different treaties. Taxpayers should examine carefully the specific treaty provisions applicable in their cases to determine the nature and extent of treaty benefits or safeguards they are entitled to and the conditions under which such benefits or safeguards are available. See section 9 of this revenue procedure, which prescribes protective measures to be taken by the taxpayer and any concerned related person with respect to U.S. and foreign tax authorities. See also section 12.02 of this revenue procedure for circumstances in which competent authority assistance may be denied.

.02 Requirements of a Treaty . There is no authority for the U.S. competent authority to provide relief from U.S. tax or to provide other assistance due to taxation arising under the tax laws of the foreign country or the United States, unless such authority is granted by a treaty. See also Rev. Proc. 89–8, 1989–1 C.B. 778, for procedures for requesting the assistance of the Internal Revenue Service (“the Service”) when a taxpayer is or may be subject to inconsistent tax treatment by the Service and a U.S. possession tax agency.

.03 Applicable Standards in Allocation Cases . With respect to requests for competent authority assistance involving the allocation of income and deductions between a U.S. taxpayer and a related person, the U.S. competent authority and its counterpart in the other treaty country will be bound by the arm’s length standard provided by the applicable provisions of the relevant treaty. The U.S. competent authority also will be guided by the arm’s length standard consistent with the regulations under section 482 of

the Code and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. When negotiating mutual agreements on the allocation of income and deductions, the U.S. competent authority will take into account all of the facts and circumstances of the particular case and the purpose of the treaty to avoid double taxation.

.04 Who Can File Requests for Assis- tance . Unless otherwise permitted under an applicable tax treaty, the U.S. competent authority will only consider requests for assistance from U.S. persons, as defined in section 7701(a)(30) of the Code. For purposes of this revenue procedure, a U.S. person is referred to as “the taxpayer.” Thus, non-U.S. persons generally must present their initial request for assistance to the relevant foreign competent authority. As noted in Sec. 12.02 of this revenue procedure, there are circumstances in which the U.S. competent authority will not pursue assistance.

.05 Closed Cases . A case previously closed after examination shall not be reopened in order to make an adjustment unfavorable to the taxpayer unless the exceptional circumstances described in Rev. Proc. 94–68, 1994–2 C.B. 803, are present. The U.S. competent authority may, but is not required to, accept a taxpayer’s request for competent authority consideration that will require the reopening of a case closed after examination.

.06 Foreign Initiated Competent Authority Request . When a foreign competent authority refers a request from a foreign taxpayer to the U.S. competent authority for consultation under the mutual agreement procedure, the U.S. competent authority generally will require the U.S. related taxpayer (in the case of an allocation of income or deductions between related persons) or may require the foreign taxpayer (in other cases) to file a request for competent authority assistance under this revenue procedure.

.07 Requests Relating to Residence Issues . U.S. competent authority assistance may be available to taxpayers seeking to clarify their residency status in the United States. Examples include cases in which taxpayers believe that they are erroneously treated as non-U.S. residents by treaty countries or cases where taxpayers are treated as dual residents despite

August 5, 2002 244 2002–31 I.R.B.

for litigation or while a suit contesting the relevant tax liability of the taxpayer is pending in a U.S. court, a copy of the request also must be filed with the Associate Chief Counsel (International), Internal Revenue Service, 1111 Constitution Avenue N.W., Washington, D.C. 20224, with a separate statement attached identifying the court where the suit is pending and the docket number of the action.

.04 Form of Request . A request for competent authority assistance must be in the form of a letter addressed to the Director, International. It must be dated and signed by a person having the authority to sign the taxpayer’s federal tax returns. The request must contain a statement that competent authority assistance is being requested and must include the information described in section 4.05 of this revenue procedure. See section 5 of this revenue procedure for requests involving small cases.

.05 Information Required . The following information shall be included in the request for competent authority assistance:

(a) a reference to the specific treaty and the provisions therein pursuant to which the request is made;

(b) the names, addresses, U.S. taxpayer identification number and foreign taxpayer identification number (if any) of the taxpayer and, if applicable, all related persons involved in the matter;

(c) if applicable, a description of the control and business relationships between the taxpayer and any relevant related person for the years in issue, including any changes in such relationship to the date of filing the request;

(d) a brief description of the issues for which competent authority assistance is requested, including a brief description of the relevant transactions, activities or other circumstances involved in the issues raised and the basis for the adjustment, if any;

(e) the years and amounts involved with respect to the issues in both U.S. dollars and foreign currency;

(f) the IRS office which has made or is proposing to make the adjustment or has examination jurisdiction over the taxpayer;

(g) an explanation of the nature of the relief sought or the action requested in the United States or in the treaty country with

the objective tie-breaker provisions contained in the applicable treaties. Generally, competent authority assistance is limited to situations where resolution of a residency issue is necessary in order to avoid double taxation or to determine the applicability of a benefit under the treaty. Further, a request for assistance regarding a residency issue will be accepted only if it is established that the issue requires consultation with the foreign competent authority in order to ensure consistent treatment by the United States and the applicable treaty country. The U.S. competent authority does not issue unilateral determinations with respect to whether an individual is a resident of the United States or of a treaty country.

.08 Determinations Regarding Limita- tion on Benefits . Many treaties contain a limitation on benefits article that enumerates prescribed requirements that must be met to qualify as a resident that may be eligible for benefits under the treaty. The U.S. competent authority will not issue determinations regarding a taxpayer’s status under one of the prescribed requirements in a limitation on benefits provision. However, certain treaties provide that the competent authority may, as a matter of discretion, determine the availability of treaty benefits where the prescribed requirements are not met. See, e.g., Article 22(4) of the U.S.-South Africa income tax treaty. Requests for assistance in such cases should comply with this revenue procedure and any other specific procedures that may be issued from time to time. Taxpayers who are requesting a discretionary determination under a limitation on benefits provision should include the information described in exhibit 4.60.3–3 of the Internal Revenue Manual (“IRM”), Part 4 Examining Process, Chapter 60 International Procedure, Section 3 Tax Treaty Related Matters (IRM 4.60.3).