A taxpayer who is a U.S. resident for purposes of a U.S. income tax treaty is generally entitled to request assistance from the U.S. “competent authority” where the actions of a treaty country or the United States would (i) cause double taxation or (ii) taxation that is inconsistent with the treaty. Competent authority assistance is only available with respect to countries that have an applicable tax treaty with the United States. Our Treaty Resource Page provides an overview of every U.S. tax treaty and the tax system of each such country.
A taxpayer seeking assistance from the U.S. competent authority should always first consult any applicable treaty articles, including the Mutual Agreement Procedure (MAP) article, before requesting assistance. In addition to filing a request for assistance with competent authority, the taxpayer should consider (i) filing a timely protective claim for credit or refund; and (ii) take any required actions that are necessary under the procedures of the foreign country to avoid losing the right to appeal or obtain competent authority review under that country’s income tax laws.
Note that some tax treaties provide specific timing requirements that govern competent authority requests and a taxpayer must comply with the applicable pre-filing procedures. In addition, some agreements with the IRS can limit a taxpayer’s ability to utilize the competent authority process.
What is Competent Authority?
The “Competent Authority” is responsible for applying and interpreting the tax treaty between the United States and a treaty partner and resolving disputes and issues related to such treaties.
The MAP articles of U.S. tax treaties provide taxpayers with the right to request the assistance of the competent authority when a taxpayer believes that the actions of the United States or the applicable U.S. treaty partner will result in the taxpayer being subject to taxation that is inconsistent with the treaty.
The U.S. competent authority is authorized to apply the provisions of U.S. tax treaties and has authority to interpret the provisions of U.S. tax treaties with the concurrence of the IRS Associate Chief Counsel (International). Otherwise, the U.S. competent authority has exclusive jurisdiction and control over the issue in a valid competent authority request.
Who is the Competent Authority?
U.S. tax treaties designate the Secretary of the Treasury or a delegate of the Secretary is designated as the competent authority with respect to the United States.
That authority, however, has been delegated through the IRS Commissioner to the Deputy Commissioner (International), LB&I.
The authority to act as the U.S. competent authority on behalf of the Deputy Commissioner (International), LB&I has been further delegated to the Assistant Deputy Commissioner (International), LB&I.
And authority to act as the U.S. competent authority with respect to certain competent authority issues has been delegated still further to the directors of Transfer Pricing Operations (which reports to the Deputy Commissioner (International), LB&I) and the Advance Pricing and Mutual Agreement Program (a representative office of the U.S. competent authority and one of the divisions of TPO).
Thus, the office of the U.S. competent authority is technically within the IRS’s Large Business and International (LB&I) Division.
The Advance Pricing and Mutual Agreement Program and the Treaty Assistance and Interpretation Team
The U.S. competent authority conducts the competent authority process through two offices: The Advance Pricing and Mutual Agreement Program (“APMA”) and the Treaty Assistance and Interpretation Team (“TAIT”).
The APMA has primary responsibility for cases arising under the business profits and associated enterprises articles of U.S. tax treaties. For example, if an allocation made by the IRS pursuant to section 482 of the Internal Revenue Code would result in double taxation, the APMA has primary jurisdiction.
TAIT, on the other hand, has primary responsibility for cases arising under all other articles of U.S. tax treaties as well as cases arising under U.S. tax treaties with respect to estate and gift taxes.
Both APMA and TAIT are authorized to consider cases arising under the permanent establishment articles of U.S. tax treaties.