ARTICLE 25

Mutual Agreement Procedure

This article modernizes the mutual agreement procedures by adopting provisions similar to those in our recent treaties with Belgium, France, Finland and Norway and in the recent amendments to our Conventions with the Netherlands, the United Kingdom, and the Federal Republic of Germany. When a resident of one State considers that the action of one or both States has resulted, or will possibly result, in taxation contrary to the provisions of the Convention, such resident may present his case to the competent authority of the State of which he is a resident. This remedy is in addition to any remedy provided by the national laws of either State.

This article contemplates that the competent authorities of the two States will endeavor to settle by mutual agreement such cases of taxation not in accordance with the Convention as well as any other difficulties or doubts arising as to the interpretation or application of the Convention. Some particular areas on which the competent authorities may consult and reach agreement are:

the amount of industrial and commercial profits to be attributed to a permanent establishment,

the allocation of income, deductions, credits, or allowances between a resident and a related person,

the determination of source of particular items, and the meaning of any term used in the Convention.

However, consultation and agreement between the competent authorities are not restricted to the particular areas described in this article. Thus, for example, the competent authorities may consult and reach agreement with respect to uniform accounting for income and deductions. While not all income tax conventions to which the United States is a party are as explicit as to the broad scope of the mutual agreement procedure, most of our conventions grant the discretion to competent authorities to apply the mutual agreement procedure to an equally broad category of items.

In implementing the provisions of this article, the competent authorities will communicate with each other directly and meet together for an exchange of oral opinions when advisable.

In cases in which the competent authorities reach agreement with respect to a particular matter, taxes will be adjusted and refunds or credits allowed in accordance with such agreement. This provision permits the issuance of a refund or credit notwithstanding procedural barriers otherwise existing under a State's law, such as the statute of limitations. This provision will apply only where agreement has been reached in whole or in part between the competent authorities and will apply in the case of any such agreement on or after the date on which the Convention entered into force (July 9, 1972) even though the agreement may concern taxable years prior thereto.

Revenue Procedure 70-18 [1970-2 C.B. 493] sets forth the procedure followed by the United States in implementing its obligations under this type of article.