Article 27. MUTUAL AGREE­

MENT PROCEDURE

This article modernizes the mutual agreement procedures found in the existing Convention by adopting pro­ visions similar to those in our recent Conventions with France, Finland, and Trinidad and Tobago, and in the recent amendments to our Conven­ tions with the Netherlands, the United Kingdom, and the Federal Re­ public of Germany. When a resident of one State considers that action of one or both States has resulted, or will possibly result, in taxation contrary to the provisions of the proposed Con­

vention, 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 ei­ ther State.

This article contemplates that the competent authorities of the two States will endeavor to settle by mu­ tual agreement such cases of taxation not in accordance with the proposed Convention as well as any other diffi­ culties or doubts arising as to the in­ terpretation or application of the pro­ posed Convention. Some particular areas on which the competent author­ ities may consult and reach agreement are the amount of industrial and com­ mercial profits to be attributed to a permanent establishment, the alloca­ tion of income, deductions, credits, or allowances between a resident and a related person, the definition of terms and the determination of source of particular items.

In implementing the provisions of this article, the competent authorities will communicate with each other di­ rectly and meet together for an ex­ change of oral opinions when advisa­ ble.

In cases in which the competent au­ thorities reach agreement with respect to a particular matter, taxes will be adjusted and refunds or credits al­ lowed in accordance with such agree­ ment. This provision permits the issu­ ance of a refund or credit notwith­ standing procedural barriers otherwise existing under a State’s law, such as

the statute of limitations.

This provision will apply only where agreement or partial agreement has been reached between the compe­ tent authorities and will apply in the case of any such agreement after the proposed Convention goes into effect even though the agreement may con­ cern taxable years prior thereto.

Revenue Procedure 70-18, 1970-2 C.B. 493, sets forth the procedure fol­ lowed by the United States in imple­ menting its obligations under this type of article.

The Convention of June 13, 1949, as well as the Supplementary Conven­ tion of July 10, 1958, will terminate and cease to have effect in respect of income to which the proposed Con­ vention applies under the above-men­ tioned rules of this article.