Part II. Treaties and Tax Legislation

who fail to cooperate with either of the CAs in providing relevant

Keiji Aoyama Deputy Commissioner, International National Tax Agency Japanese Competent Authority December 27, 2005 Date

information and data during the MAP process.

Section III. Independent Review Process

1. Independent Review

bullet of this part (III.1), if either CA determines that the CAs have been unable to agree on the underlying facts and circumstances of a specific MAP case within six months after the first face-to-face negotiating meeting for the case, the CAs must refer the case to the independent review process.

referral to the ARP can be made at a date that is earlier or later than that provided in the first bullet of this part (III.1). Each CA agrees to consult promptly upon the request of the other CA for early or late referral.

2. Referral Request

a different referral date, each CA must refer any MAP case required to be referred under the first bullet of part 1 of this section (III) to its respective Appeals organization by no later than 30 days after the expiration of the six-month period referenced therein, or, if one or more face-to-face negotiating meetings for the MAP case were held prior to the full execution of this MOU, then by no later than 6 months plus 30 days after full execution of this MOU.

of a written submission prepared by the respective CA setting out

January 23, 2006 342 2006–4 I.R.B.

in detail the nature of the factual disagreement and the views of the CAs.

any MAP case, they may make a joint referral request that does not disclose the country identity of the subject taxpayer(s), and, for such cases, alter the procedures set forth in this MOU.

3. Acknowledgement of Referral

Each Appeals organization will, within 30 days after the date that a referral request is made pursuant to part 2 of this section (III), advise its CA in writing of the receipt of the referral request and the identities of the individuals selected, pursuant to part 4 of this section (III), for the ARP for the subject MAP case.

4. Selection of the ARP

Assistant Commissioner of Appeals will each appoint one voting member from their respective Appeals organizations to the ARP. Those two individuals will have independent authority to resolve the factual disagreement involved in the MAP case. The Chief of Appeals and the Assistant Commissioner of Appeals may also appoint one or more non-voting member(s) from their respective Appeals organization to the ARP. The voting and non-voting members of the ARP will, collectively, be referred to as “Members”.

no ARP Member may have had any previous involvement in an audit of the subject taxpayer(s) or in a resolution of objections filed by such taxpayer(s).

5. Ex Parte Contacts

tary information/representation from any party possessing relevant information.

with Members of the ARP by either the CAs or the subject taxpayers or their representatives unless at the request of the ARP. If any prohibited ex-parte contact occurs, the Member who was contacted shall immediately disclose such contact to the voting Member(s).

ment-to-government process. Accordingly, the Appeals organizations will not disclose their processes or findings to the subject taxpayer(s), the taxpayer’(s’) representatives or any person other than the CAs.

6. Meetings and Timeframe

discussions, such discussions will be held in Ottawa or Washington, D.C., on an alternating basis.

and render its decision by no later than 150 days after the date on which the referral request is required or agreed to be made pursuant to part 2 of this section (III). Either CA may grant an extension upon request by the ARP.

7. ARP Decision

part 4 of this section (III) agree on a resolution of the factual disagreement(s), the ARP will issue a written report that identifies the subject taxpayer(s), describes the factual disagreement(s), and summarizes the resolution of the factual disagreement(s). The CAs

will follow the ARP’s resolution of the factual disagreement(s).

part 4 of this section (III) cannot agree on a resolution of the factual disagreement(s), each Appeals organization will provide a written explanation of its voting member’s finding.

8. Not to Be Used as Precedent

A decision by the ARP will not be considered as establishing a precedent for resolving other MAP cases.

9. Appeals Process

No Members of this ARP should participate in any subsequent resolution of the subject MAP case.

Section IV. Other

The CAs agree to publish this MOU to demonstrate their mutual commitment to improving the MAP process.

This MOU sets forth procedures to be applied in addressing MAP cases under the Convention. Nothing in this MOU shall be construed as affecting taxpayers’ rights under applicable domestic law.

This MOU is not to be interpreted as creating or limiting any cause of action, rights or benefits in favour of third parties or taxpayers.

This MOU is effective when fully executed. It may be terminated at any time by either CA giving written notice to the other CA and it may be modified at any time by mutual agreement of the CAs.

The information furnished to the ARP is provided under the terms of the Convention, which governs its disclosure and use. For purposes of this MOU, the Members will be delegated as members of the staff of their respective CAs in accordance with their administrative procedures.

2006–4 I.R.B. 343 January 23, 2006

Competent Authority for Canada Competent Authority for the United States

Frederick R. O’Riordan Director General International Tax Directorate Canada Revenue Agency

Robert H. Green Director-International Large and Medium Size Business Internal Revenue Service

Date: Date:

Mexico LLC MAP Agreement

Announcement 2006–8

The following is a copy of the Mutual Agreement entered into on December

22, 2005, by the Competent Authorities of the United States and Mexico, regarding fiscally transparent entities under the U.S.-Mexico income tax treaty.

The text of the Agreement is as follows:

COMPETENT AUTHORITY MUTUAL AGREEMENT

The Competent Authorities of the United States and Mexico hereby enter into the following mutual agreement (“the Agreement”), which supersedes and clarifies the Competent Authority Mutual Agreement entered into on Aug. 26, 2005, Announcement 2005–72, I.R.B. 2005–41. The Agreement specifies the cases where fiscally transparent entities are entitled to treaty benefits and clarifies the procedure for claiming benefits from Mexico. The Agreement is entered into under paragraph 3 of Article 26 (Mutual Agreement Procedure) of the Convention Between the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, along with a Protocol, signed on September 18, 1992, and as amended by the Additional Protocol signed on September 8, 1994, and the Second Additional Protocol signed on November 26, 2002 (the “Treaty”).

1. Eligibility of fiscally transparent entities for treaty benefits

Paragraph 2(b) of the Protocol provides:

For purposes of paragraph 1 of Article 4 it is understood that:

- - - -

b) a partnership, estate, or trust is a resident of a Contracting State only to the extent that the income it derives is subject to tax in that State as the income of a resident, either in the hands of the partnership, estate or trust, or in the hands of its partners or beneficiaries;

The Competent Authorities agree that in applying paragraph 2(b) of the Protocol, it is understood that income from sources within one of the Contracting States received by an entity that is organized in either of the Contracting States, or a third state with which Mexico has in force a comprehensive exchange of information agreement, and that is treated as fiscally transparent under the laws of either Contracting State will be treated as income derived by a resident of the other Contracting State to the extent that such income is subject to tax as the income of a resident of the other Contracting State.

For Mexican tax purposes, a fiscally transparent entity organized in the United States, such as a U.S. limited liability company (LLC) that has elected to be treated as a partnership for federal tax purposes, will be treated as a U.S. resident for purposes of paragraph 2(b) of the Protocol, and entitled to claim treaty benefits, to the extent that the income it derives is subject to tax as the income of a U.S. resident in the hands of its members, owners, partners or beneficiaries. Similar rules will apply to a U.S. subchapter S Corporation, an LLC that is disregarded as an entity separate from its owner, or a U.S. grantor trust.

For example, if a U.S. LLC that is treated as a partnership for U.S. federal tax purposes receives a royalty payment from Mexico, and the U.S. LLC has two members with equal interests in the LLC, one Mexican and one U.S., the LLC may claim treaty benefits as a U.S. resident with respect to 50% of the royalty payment because 50% of the payment is subject to tax in the United States in the hands of a U.S. resident member.

January 23, 2006 344 2006–4 I.R.B.

Consistent with this agreement, if a U.S. LLC that is treated as a partnership for U.S. federal tax purposes owns 99 percent of the stock of a Mexican corporation, and the U.S. LLC has five members with equal interests in the LLC, under paragraph 4 of Article 13 (Capital Gains), the gains derived by the LLC from the alienation of such shares may be taxed in Mexico because the LLC had, at any time during the 12-month period preceding such alienation, a participation, directly or indirectly, of at least 25 percent in the capital of the company.

Mexico agrees to apply this Agreement with respect to amounts paid to an entity created and subject to the laws of a third state or jurisdiction only where such third state or jurisdiction has in force a comprehensive exchange of information agreement as provided in Mexican tax provisions and such information is effectively exchanged. The following is the current list of countries that Mexico has a comprehensive exchange of information in force. Such a list is published under Mexican administrative regulations and may be amended from time to time.

Accordingly, if an LLC organized in one of the states listed above receives an interest payment from Mexico, and the LLC has two member owners with equal interests in the LLC, one third jurisdiction resident and one U.S. resident, the LLC may claim treaty benefits as a U.S. resident with respect to 50% of the interest payment because 50% of the payment is subject to tax in the United States in the hands of a U.S. resident member.

2. U.S. Residency Certification for LLCs and other fiscally transparent entities

A LLC or other entity organized within or without the United States that is treated as a partnership for U.S. tax purposes may certify U.S. residence for treaty purposes by obtaining a certificate of residence on Form 6166 in the same manner as a partnership. A Form 6166 confirms the filing of Form 1065, U.S. Return of Partnership Income, by the LLC and includes a list of members of the LLC that are residents of the United States for U.S. federal tax purposes. The Form 6166 will inform the withholding agent to contact the LLC directly to provide information regarding the allocation of a particular payment to a specific member.

A LLC or other entity organized within or without the United States that is disregarded as an entity separate from its owner for U.S. federal tax purposes may certify U.S. residence for treaty purposes by obtaining a Form 6166 that provides that the LLC is a branch, division, or business unit of its single member owner, and that such single member owner is a resident of the United States.

A U.S. corporation that has made an election to be treated as an S Corporation for U.S. federal tax purposes may certify U.S. residence for treaty purposes by obtaining a Form 6166 certificate of residence in a manner similar to that of a partnership. A Form 6166 confirms the filing of an information return, Form 1120S, U.S. Income Tax Return for an S Corporation, as required for a domestic S Corporation, and includes a list of shareholders that are residents of the United States for purposes of U.S. taxation.

3. Effective dates

Upon signature by both competent authorities, this Agreement is effective with respect to Mexican source payments made to Mexican or U.S. entities to the extent the Mexican statute of limitations is open for such payments. This Agreement is effective with respect to Mexican source payments made to entities organized in third countries or jurisdictions identified in the Agreement as of January 1, 2006.

2006–4 I.R.B. 345 January 23, 2006

Agreed to by the undersigned Competent Authorities:

Robert H. Green U.S. Competent Authority

Ana Bertha Thierry Mexican Competent Authority

December 22, 2005 December 22, 2005

January 23, 2006 346 2006–4 I.R.B.