House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service, the Hon Kelly O'Dwyer MP)

Chapter 6 - Arbitration

Outline of chapter

6.1 This Chapter explains the way in which the Multilateral Convention will modify Australia's Covered Tax Agreements to include rules that will provide taxpayers with the option of referring certain unresolved tax disputes to independent and mandatory binding arbitration.

Context of amendments

6.2 As discussed in Chapter 5 of this explanatory memorandum, the BEPS Final Report on Action 14 (Making Dispute Resolution Mechanisms More Effective) responded to the recognition in the 2013 OECD/G20 BEPS Action Plan that actions addressing BEPS must be complemented with actions to ensure tax certainty and predictability for business.

6.3 In addition to the commitment by all jurisdictions to implement the minimum standard for resolving treaty-related tax disputes, the BEPS Final Report on Action 14 noted that 20 jurisdictions (including Australia) also committed to providing for mandatory binding MAP arbitration (mandatory binding arbitration) in their bilateral tax agreements. This mechanism will help guarantee that such disputes will be resolved within a specified timeframe.

6.4 Articles 18 to 26 of the Multilateral Convention provide for mandatory binding arbitration. Article 28(2) of the Multilateral Convention allows Parties to formulate reservations with respect to the scope of cases that will be eligible for arbitration.

Summary of new law

6.5 Part VI (Arbitration) of the Multilateral Convention contains the mechanisms to support mandatory binding arbitration and its interaction with other dispute resolution provisions:

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Article 18 - choice to apply Part VI;

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Article 19 - mandatory binding arbitration;

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Article 20 - appointment of arbitrators;

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Article 21 - confidentiality of arbitration proceedings;

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Article 22 - resolution of a case prior to the conclusion of the arbitration;

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Article 23 - type of arbitration process;

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Article 24 - agreement on a different resolution;

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Article 25 - costs of arbitration proceedings; and

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Article 26 - compatibility.

6.6 Article 18 allows jurisdictions to choose to apply the arbitration provisions in Part VI of the Multilateral Convention.

6.7 The application of Part VI may be subject to a Party's formulated reservation (or reservations) on the scope of cases eligible for arbitration under Article 28(2)(a) in Part VII (Final Provisions) of the Multilateral Convention. The reservation is subject to acceptance by the other Party to the relevant Covered Tax Agreement.

6.8 Consistent with Australia's commitment to implement arbitration, Australia has provisionally indicated that it will choose to apply the arbitration provisions in Part VI.

6.9 However, as permitted by Article 28(2)(a), Australia has provisionally indicated that it will formulate a reservation to exclude any case from the scope of Part VI to the extent that it involves the application of Australia's general anti-avoidance rules contained in Part IVA of the ITAA 1936 and section 67 of the FBT Assessment Act. Articles 18 to 26 of the Multilateral Convention will not apply to modify a Covered Tax Agreement if the other Party does not accept this reservation.

6.10 Once a jurisdiction chooses to apply the arbitration provisions, the adoption of Articles 19 to 26 is mandatory, but their application may be varied by another Party's invocation of a relevant reservation.

6.11 Article 19 prescribes the circumstances in which mandatory binding arbitration may be initiated and the status of an arbitration decision.

6.12 Australia has provisionally indicated that it will make the following reservations:

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to exclude issues that have been decided by a court or administrative tribunal of either of the two jurisdictions; and

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to terminate cases referred for arbitration if the substantive underlying issue is decided by a court or administrative tribunal of either of the two jurisdictions before the arbitration panel delivers its decision.

6.13 Articles 20 and 21 address the appointment of arbitrators and the confidentiality of arbitration proceedings.

6.14 Article 22 provides for the termination of a MAP and the associated arbitration proceedings if the case is resolved or withdrawn before the arbitration concludes.

6.15 Article 23 sets out the default rules for arbitration processes (the 'final offer' or 'independent opinion approach') that may apply.

6.16 Article 24 authorises jurisdictions to choose to allow their competent authorities to agree on a different resolution (to the resolution determined under the arbitration process) within the three months following the delivery of the arbitration decision.

6.17 Article 25 provides for the sharing of the costs of the arbitration proceedings between the two jurisdictions and allows for the competent authorities to agree on different rules.

6.18 Article 26 prescribes the way in which Part VI of the Multilateral Convention will modify Covered Tax Agreements and interact with any existing arbitration provisions contained in those agreements that apply in relation to MAP cases.

6.19 As discussed in Chapter 1 of this explanatory memorandum, the Explanatory Statement accompanying the Multilateral Convention describes the functioning of the operative provisions in Part VI, and is therefore relevant for the interpretation of Articles 18 to 26.

Detailed explanation of new law

6.20 Part VI (Arbitration) of the Multilateral Convention (Articles 18 to 26) allows for mandatory binding arbitration where the competent authorities (in Australia's case, the Commissioner of Taxation or an authorised representative of the Commissioner) have been unable to resolve a case presented by a taxpayer under the MAP within two years.

Choosing to apply arbitration to MAP cases

6.21 A jurisdiction can choose to apply Part VI (Arbitration) of the Multilateral Convention with respect its Covered Tax Agreements by notifying the Depositary of their choice. [Article 18 of the Multilateral Convention]

6.22 Australia has provisionally indicated that it will choose to apply Part VI.

Modifying Covered Tax Agreements to include arbitration rules

6.23 If a Covered Tax Agreement already contains a provision that provides for arbitration of unresolved issues arising from a MAP case, then that provision will be replaced by the rules contained in Part VI of the Multilateral Convention. [Article 26(1) of the Multilateral Convention]

6.24 Such replacements will occur if both Parties to a Covered Tax Agreement choose to apply Part VI (as per Article 18) and make the necessary notifications about the affected provision to be replaced. [Article 26(1) of the Multilateral Convention]

6.25 Australia has provisionally indicated that the relevant provisions are contained in Australia's tax agreements with New Zealand and Switzerland.

6.26 If a Covered Tax Agreement does not contain such a provision, then Part VI will be added to that Covered Tax Agreement. [Article 26(1) of the Multilateral Convention]

6.27 Based on the known or proposed adoption positions of other Signatories to the Multilateral Convention, Australia's tax agreements with Belgium, Canada, Fiji, Finland, France, Ireland, Italy, Malta, the Netherlands, New Zealand, Singapore, Spain and the United Kingdom are expected to be modified to provide for mandatory binding arbitration.

6.28 However, Part VI is not intended to impact a Party's other obligations with respect to arbitration of unresolved issues arising from MAP cases under other conventions to which the Party is or will become a signatory or a party. [Article 26(3) of the Multilateral Convention]

6.29 That is, Part VI will only affect Covered Tax Agreements modified by the Multilateral Convention and only apply to issues or cases covered by Part VI.

Excluding cases previously subject to arbitration

6.30 Where an arbitration panel (or similar body) had previously been set up in accordance with a bilateral or multilateral convention to decide a case, any unresolved issues from that case are not to be submitted for mandatory binding arbitration under Part VI of the Multilateral Convention. [Article 26(2) of the Multilateral Convention]

6.31 This is to avoid potential duplication of efforts in resolving an issue arising from a MAP that was previously subject to arbitration under a provision of an international agreement (including a Covered Tax Agreement prior to being modified by the Multilateral Convention).

Excluding cases involving the application of Part IVA of the ITAA 1936 and section 67 of the FBT Assessment Act

6.32 As discussed in Chapter 1 of this explanatory memorandum, Article 28 outlines the reservations permitted by the Multilateral Convention.

6.33 Article 28(2) allows a Party to formulate and make one or more reservations to limit the types of cases that can be submitted for arbitration under Part VI of the Multilateral Convention. [Article 28(2)(a) of the Multilateral Convention]

6.34 Unlike other reservations allowed by the Multilateral Convention, this reservation is subject to the acceptance of the relevant partner jurisdiction to a Covered Tax Agreement. Such a reservation is deemed to have been accepted if the relevant partner jurisdiction has not objected to the reservation, by the later date of:

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12 months after the Depositary notifies the Parties of the reservation; or

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the date that the relevant partner jurisdiction deposits its instrument of ratification of the Multilateral Convention.

[Article 28(2)(b) of the Multilateral Convention]

6.35 The effect of raising an objection is that Part VI will not apply between the Parties (i.e. Articles 18 to 26 will not apply in relation to the Covered Tax Agreement). [Article 28(2)(b) of the Multilateral Convention]

6.36 Australia has provisionally formulated and made the reservation allowable under Article 28(2)(a) to exclude from the scope of Part VI any case to the extent that it involves the application of Australia's general anti-avoidance rules contained in Part IVA of the ITAA 1936 and section 67 of the FBT Assessment Act, including any provisions that replace, amend or update those rules.

6.37 That is, binding arbitration is unavailable for any cases to the extent that they involve the application of Australia's general anti-avoidance rules that apply to income tax and FBT.

6.38 This approach is consistent with Australia's practice of applying its general anti-avoidance rules despite any obligation in its bilateral tax agreements, which is reflected in the ordering rules contained in subsections 4(2) and 4AA(2) of the Tax Agreements Act.

Requesting mandatory binding arbitration

6.39 Article 19(1) permits a taxpayer to submit any unresolved issues arising from a MAP case, in writing, for arbitration. Such submissions must be made in accordance with any rules and procedures agreed upon by the relevant competent authorities. [Article 19(1) of the Multilateral Convention]

6.40 These rules and procedures arise from the competent authorities' obligation to settle, by mutual agreement, the mode of application of the provisions of Part VI, including the minimum information necessary for each competent authority to undertake a substantive consideration of the case. [Article 19(10) of the Multilateral Convention]

6.41 In order for the rules and procedures to be available to taxpayers upon submission, the relevant competent authorities must settle the mode of application of the provisions of Part VI before the date on which unresolved issues are first eligible to be submitted to arbitration (see paragraph 229 of the Explanatory Statement to the Multilateral Convention).

6.42 The issues that could be submitted for arbitration are:

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those arising from a MAP case presented to a competent authority on the basis that the action of either or both Parties have resulted (or will result) in the taxpayer being taxed not in accordance with the provisions of a Covered Tax Agreement; and

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the competent authorities were not able to reach an agreement to resolve the case within two years (or a different length of time as agreed to by the competent authorities before the expiration of two years).

[Article 19(1)(a) and (b) of the Multilateral Convention]

Calculating the two year period

6.43 The two year period (or other length of time as agreed to by the competent authorities) commences from:

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if the competent authorities have not requested additional information - the earlier of:

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the date on which both competent authorities notified the taxpayer of receipt of the information necessary to undertake substantive consideration of the case; and

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the date that is three months after the competent authority that received the initial request for a MAP notifies the other competent authority of the receipt of the request; or

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if the competent authorities have requested additional information - the earlier of:

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the latest date on which the competent authorities that requested the additional information notified the taxpayer and the other competent authority of the receipt of the information requested; and

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the date that is three months after both competent authorities have received all information requested from the taxpayer by either competent authority.

[Article 19(8) and (9) of the Multilateral Convention]

6.44 The two year (or other) period of time stops running if the MAP is suspended by a competent authority because one or more of the same issues are before a domestic court or administrative tribunal. The suspension will be lifted once the court or tribunal has delivered its final decision or the case in the court or tribunal is suspended or withdrawn. [Article 19(2) of the Multilateral Convention]

6.45 This rule is designed to ensure that separate resolutions of the same issues do not occur concurrently (see paragraph 217 of the Explanatory Statement to the Multilateral Convention).

6.46 Article 19(11) allows a jurisdiction to make the reservation to replace the two year period with a period of three years. Where this reservation is made by one Party to a Covered Tax Agreement, the period is varied for both Parties. [Article 19(11) of the Multilateral Convention]

6.47 Australia has provisionally indicated that it will not make this reservation.

6.48 Where the taxpayer and a competent authority have agreed to suspend the MAP, the two year (or other) period will stop running until the suspension is lifted. [Article 19(2) of the Multilateral Convention]

6.49 The two year (or other) period of time will be extended if both competent authorities agree that the taxpayer has failed to provide the additional material information requested by either competent authority in a timely manner. In such circumstances, the relevant period of time will be extended by the same amount of time taken by the taxpayer to provide the additional material information. [Article 19(3) of the Multilateral Convention]

Acknowledging an initial request for a MAP and requesting additional information

6.50 To ensure the effective and efficient resolution of treaty-related tax disputes, time limits are imposed on competent authorities to acknowledge the receipt of MAP requests and related information requirements.

6.51 The competent authority that received the initial request has two months from the date of receipt to:

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notify the taxpayer and the other competent authority that the request has been received; and

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provide a copy of the request to the other competent authority.

[Article 19(5) of the Multilateral Convention]

6.52 In relation to the information needed to support a MAP, the competent authority that received the initial request (or copy thereof) must, within three months:

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notify the taxpayer and the other competent authority of the receipt of the information necessary to undertake substantive consideration of the case; or

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request additional information from the taxpayer.

[Article 19(6) of the Multilateral Convention]

6.53 Within three months of receiving any additional information from a taxpayer, the competent authority that requested that information must notify the taxpayer and the other competent authority of the receipt of the information or whether some of the requested information is still missing. [Article 19(7) of the Multilateral Convention]

Arbitration not available if issue decided by a court or tribunal

6.54 Australia has provisionally indicated that it will make the reservations allowable under Article 19(12):

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to not allow taxpayers to submit for arbitration any unresolved issues arising from a MAP that has been decided by a domestic court or an administrative tribunal of Australia or the relevant partner jurisdiction to a Covered Tax Agreement; and

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to terminate cases referred for arbitration if the relevant issue is decided by a court or an administrative tribunal of Australia or the relevant partner jurisdiction to a Covered Tax Agreement before the arbitration panel delivers its decision.

6.55 That is, if a court or tribunal of either Party decides on an unresolved issue arising from a MAP case before an arbitration panel delivers its decision, an arbitration decision on the same issue will not be provided.

Status of arbitration decision

6.56 Decisions delivered by the arbitration panel are final and binding, subject to the exceptions contained in Article 19(4)(b). [Article 19(4)(a) of the Multilateral Convention]

6.57 The decision will not be binding if:

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the taxpayer does not accept the mutual agreement implementing the arbitration decision;

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the decision is found to be invalid by a final decision of the domestic courts of either Party; or

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the taxpayer pursues litigation on the issues in a court or an administrative tribunal.

[Article 19(4)(b) of the Multilateral Convention]

Decision not binding - non-acceptance of the decision

6.58 Where the taxpayer does not accept the arbitration decision, the case will not be able to be considered further by the competent authorities.

6.59 The mutual agreement implementing the decision is considered to be not accepted by the taxpayer if, within 60 days after sending the notification of the mutual agreement to the taxpayer, the taxpayer:

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does not withdraw all issues resolved in the mutual agreement implementing the arbitration decision from consideration by domestic courts or administrative tribunals; or

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does not terminate any relevant pending domestic legal or administrative proceedings.

[Article 19(4)(b)(i) of the Multilateral Convention]

6.60 Deeming non-acceptance is relevant in circumstances where the competent authorities require the taxpayer to waive its rights to domestic legal remedies as a condition for finalising the mutual agreement, if the mutual agreement has exhausted all domestic remedies.

6.61 Australia's current practice in relation to agreements reached between competent authorities is that taxpayers must, if they accept the agreement, agree to the withdrawal of any objections. If an objection decision has been reached, the taxpayer must agree not to seek review at the Administrative Appeals Tribunal or Federal Court.

Decision not binding - invalidity

6.62 Where the arbitration decision is found to be invalid by a final decision of the domestic courts of a Party to a Covered Tax Agreement, the request for arbitration is considered to not have been made and the arbitration procedure is considered to not have taken place. This allows a new request for arbitration to be submitted unless the competent authorities agree to not allow a new request. [Article 19(4)(b)(ii) of the Multilateral Convention]

6.63 'Final decision' means a non-interim decision of a court. It is not intended to imply a requirement for exhaustion of domestic legal remedies or for the highest court in the jurisdiction to deliver the judgment of invalidity.

6.64 These rules are not intended to provide independent grounds for invalidating an arbitration decision, but instead ensure that the invalidation of a decision by a court of one Party to a Covered Tax Agreement does not bind the other Party to the Agreement (see paragraph 223 of the Explanatory Statement to the Multilateral Convention).

6.65 Despite considering the arbitration process to not have taken place, the provision does not impact the requirements in respect of confidentiality of the proceedings or sharing costs of the arbitration (Articles 21 and 25 of the Multilateral Convention). [Article 19(4)(b)(ii) of the Multilateral Convention]

Decision not binding - litigation

6.66 Where the taxpayer pursues litigation on the issues that were resolved by the mutual agreement implementing the arbitration decision, the arbitration decision relating to any such litigation is not binding on either Party. [Article 19(4)(b)(iii) of the Multilateral Convention]

6.67 This provision makes it clear that a taxpayer cannot assert that an arbitration decision binds one Party while the outcome of the litigation binds the other Party.

Decision not binding - agreement to different resolution

6.68 Regardless of Article 19(4), a Party can choose to allow the competent authorities to agree on a different resolution within a period of three months after the arbitration decision has been delivered. [Article 24(1) and (2) of the Multilateral Convention]

6.69 In such a situation, the arbitration decision is not binding and does not need to be implemented by the Parties .[Article 24(2) of the Multilateral Convention]

6.70 This choice is only effective if both Parties to the Covered Tax Agreement make the choice and notify the Depositary accordingly. [Article 24(1) of the Multilateral Convention]

6.71 Australia has provisionally not indicated that it will make this choice. Thus, an arbitration decision will remain binding subject to the circumstances outlined in Article 19(4)(b) of the Multilateral Convention (taxpayer does not accept the decision, invalidity of the decision, or taxpayer litigates decision).

Procedural rules

Rules for arbitration process - 'final offer' approach

6.72 Article 23(1) provides for the 'final offer' arbitration process as the default type of arbitration process. This process applies unless the competent authorities mutually agree on different rules, with such agreement permitted on a case by case basis.

6.73 Under the final offer arbitration process:

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the competent authority of each Party would submit a proposed resolution to the arbitration panel addressing all unresolved issues in the case;

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a competent authority may also submit a supporting position paper as well if it so decides; and

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the arbitration panel will select one of the proposed resolutions as the arbitration decision.

[Article 23(1) of the Multilateral Convention]

6.74 The proposed resolution is to only include:

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for each adjustment or similar issue - the disposition of specific amounts (such as income or expense) or maximum rate of tax charged pursuant to a Covered Tax Agreement;

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for an issue (or issues) regarding questions about the conditions that must be satisfied for a provision of a Covered Tax Agreement to apply (i.e. a threshold question) - proposed answers to those questions.

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Such questions may include, for example, whether an entity is a resident of a Party or whether an entity has a permanent establishment in a jurisdiction.

[Article 23(1)(a) of the Multilateral Convention]

6.75 A competent authority must provide a copy of its proposed resolution, and supporting position paper where relevant, to the other competent authority by the date that the documents are due to be submitted to the arbitration panel. [Article 23(1)((b) of the Multilateral Convention]

6.76 In addition to providing those documents, each competent authority can also submit to the arbitration panel a reply submission to address the other competent authority's proposed resolution and supporting position paper. A copy of a reply submission is to be provided to the other competent authority by the date that the reply submission is due to be submitted to the arbitration panel, which is set by agreement as part of setting the mode of application of the Part VI provisions under Article 19(10). [Article 23(1)(b) of the Multilateral Convention]

6.77 The reply submission and its supporting paper are meant to address only the positions and arguments of the other competent authority, and are not intended as an opportunity for a competent authority to advance additional arguments in favour of its own position (see paragraph 243 of the Explanatory Statement to the Multilateral Convention).

6.78 The proposed resolution that the arbitration panel selects must be adopted by at least two (of the three) arbitration panel members (i.e. a simple majority). The arbitration panel will deliver its decision to the competent authorities in writing. [Article 23(1)(c) of the Multilateral Convention]

6.79 The decision will not include the rationale or other explanation of the reasons for the decision. [Article 23(1)(c) of the Multilateral Convention]

6.80 The arbitration decision will not have any precedential value. [Article 23(1)(c) of the Multilateral Convention]

6.81 Based on the known or proposed adoption positions of other Signatories to the Multilateral Convention, the 'final offer' approach will apply to Australia's tax agreements with Belgium, Canada, Fiji, Finland, France, Ireland, Italy, Netherlands, New Zealand, Singapore, Spain and the United Kingdom.

Rules for arbitration process - 'independent opinion' approach

6.82 A Party may reserve the right to not apply the default process of 'final offer' arbitration. In such a case, except to extent that the competent authorities of the Parties mutually agree on different rules, the 'independent opinion' approach will apply. [Article 23(2) of the Multilateral Convention]

6.83 Under this approach, after the submission of a case to arbitration, the competent authority of each Party must provide any necessary information to the arbitration panel without undue delay. Information that was unavailable to both competent authorities before the receipt of the arbitration request is not to be taken into account, unless both competent authorities agree otherwise. [Article 23(2)(a) of the Multilateral Convention]

6.84 The arbitration panel must decide the relevant issues in accordance with the relevant provisions of the applicable Covered Tax Agreement, and subject to those provisions, the relevant domestic laws of the Parties. The competent authorities may also mutually agree to identify other sources of law or authority to be considered by the arbitration panel. [Article 23(2)(b) of the Multilateral Convention]

6.85 The arbitration decision must be delivered to both competent authorities in writing, stating the sources of law relied upon and the panel's reasoning. [Article 23(2)(c) of the Multilateral Convention]

6.86 The arbitration decision needs to be reached by at least two (of the three) arbitration panel members (i.e. a simple majority). [Article 23(2)(c) of the Multilateral Convention]

6.87 The arbitration decision will not have any precedential value. [Article 23(2)(c) of the Multilateral Convention]

6.88 Based on the known or proposed adoption positions of other Signatories to the Multilateral Convention, the 'independent opinion' approach will apply to Australia's tax agreement with Malta.

Rules for arbitration process - non-disclosure

6.89 A Party can choose to apply Article 23(5) in relation to both Parties to a Covered Tax Agreement. This will occur if either Party notifies the Depositary of their choice to apply Article 23(5). [Article 23(4) of the Multilateral Convention]

6.90 Article 23(5) requires the competent authorities to ensure, before the arbitration proceedings commence, that the taxpayer and its advisors agree in writing not to disclose to any other person any information received during the arbitration proceedings from either competent authority or the arbitration panel. [Article 23(5) of the Multilateral Convention]

6.91 Arbitration and the MAP cases will be terminated where there is a material breach of a non-disclosure agreement by the taxpayer, or their advisers, before the arbitration decision is delivered to the competent authorities. [Article 23(5) of the Multilateral Convention]

6.92 Australia has provisionally indicated that it will choose to apply Article 23(5) to its proposed Covered Tax Agreements.

6.93 However, Article 23(6) allows a Party that has not chosen to apply Article 23(5) to make a reservation so that Article 23(5) will not apply to its Covered Tax Agreements. [Article 23(6) of the Multilateral Convention]

6.94 Where a Party has made the reservation allowable under Article 23(6), the other Party that made the reservation under Article 23(5) can make the reservation under Article 23(7) for Part VI of the Multilateral Convention to not apply at all. [Article 23(7) of the Multilateral Convention]

6.95 Australia has provisionally not indicated that it will make the reservation under Article 23(7). That means, unless Australia's partner jurisdiction to a Covered Tax Agreement makes such a reservation, the taxpayer and their advisers will be required to agree to these non-disclosure rules.

Appointment of arbitrators

6.96 The competent authorities of each Party can determine the rules for the appointment of arbitrators by mutual agreement. [Article 20(1) of the Multilateral Convention]

6.97 However, in the absence of such mutual agreement Article 20(2) to (4) provide the following default rules. [Article 20(1) of the Multilateral Convention]

6.98 An arbitration panel must consist of three individual members who have expertise or experience in international tax matters. [Article 20(2)(a) of the Multilateral Convention]

6.99 Each competent authority must appoint one panel member within 60 days of a taxpayer requesting the referral of a dispute to arbitration. [Article 20(2)(b) of Act the Multilateral Convention]

6.100 If a competent authority fails to do so within the 60 day period (or another period as agreed to by the competent authorities), the highest ranking official of the OECD's Centre for Tax Policy and Administration, who is not a national of either Party, must appoint a panel member on behalf of that competent authority. [Article 20(3) of the Multilateral Convention]

6.101 The two panel members must appoint another person to be the Chair of the arbitration panel within 60 days of the appointment of the second member of the arbitration panel. [Article 20(2)(b) of the Multilateral Convention]

6.102 If the two panel members fail to do so within the 60 day period (or other period as agreed to by the competent authorities), the highest ranking official of the OECD's Centre for Tax Policy and Administration, who is not a national of either Party, must appoint the Chair of the arbitration panel. [Article 20(4) of the Multilateral Convention]

6.103 The Chair of the arbitration panel must not be a national or resident of either Party. [Article 20(2)(b) of the Multilateral Convention]

6.104 At the time of appointment, each panel member must be impartial and independent of the competent authorities, tax administrations and ministries of finance of the Parties, and of all persons directly affected by the case (including their advisers). [Article 20(2)(c) of the Multilateral Convention]

6.105 Each panel member must maintain their impartiality and independence during the arbitration proceedings and avoid any conduct that may damage the appearance of impartiality and independence for a reasonable period after the conclusion of the arbitration proceedings. [Article 20(2)(c) of the Multilateral Convention]

Costs of arbitration proceeding

6.106 The competent authorities are to mutually agree as to how to bear the fees and expenses of the arbitration panel members and any costs incurred in connection with the arbitration proceedings. [Article 25 of the Multilateral Convention]

6.107 If there is no such mutual agreement, then each Party bears the following:

•

their own costs;

•

the fees and expenses for the panel member that the Party appointed;

•

half of the fees and expenses of the Chair of the arbitration panel; and

•

half of all other expenses associated with the conduct of the arbitration proceedings.

[Article 25 of the Multilateral Convention]

Confidentiality of arbitration proceedings

6.108 For the purposes of Part VI, provisions of a Covered Tax Agreement and domestic laws related to exchange of information, confidentiality and administrative assistance, the disclosure of information to the arbitration panel members and their staff (up to a maximum of three staff per member) is permitted. This includes disclosures to prospective arbitrators to the extent necessary to verify their ability to fulfil the relevant requirements. [Article 21(1) of the Multilateral Convention]

6.109 Any information disclosed is to be considered as information exchanged under the Covered Tax Agreement provisions relating to the exchange of information and administrative assistance. [Article 21(1) of the Multilateral Convention]

6.110 Prior to the arbitration proceedings, the competent authorities of the Parties must obtain agreement in writing from the panel members and their staff that they will treat information relating to the proceedings in line with confidentiality and non-disclosure obligations as per:

•

the exchange of information and administrative assistance provisions of the Covered Tax Agreement; and

•

the domestic laws of both Parties.

[Article 21(2) of the Multilateral Convention]

Resolving a case before arbitration concludes

6.111 Before the arbitration panel delivers its decision on a case, the case will be terminated if:

•

the competent authorities of the Parties reach a mutual agreement to resolve the case; or

•

the relevant taxpayer withdraws the request for arbitration or the request for a MAP.

[Article 22 of the Multilateral Convention]

6.112 The termination is effective for both the arbitration proceedings and the relevant MAP. [Article 22 of the Multilateral Convention]

Application and transitional provisions

6.113 Article 36 prescribes when Part VI (Arbitration) of the Multilateral Convention will affect the application of Australia's Covered Tax Agreements.

6.114 Part VI will affect Australia's relevant Covered Tax Agreements in relation to mandatory binding arbitration cases presented to a competent authority on or after the later date of entry into force of the Multilateral Convention for Australia and each of its relevant partner jurisdictions. [Article 36(1)(a) of the Multilateral Convention]

6.115 However, for cases presented before that date, Part VI will affect Australia's relevant Covered Tax Agreements from the date when Australia and each of its relevant partner jurisdictions notify the Depositary that they have agreed on the mode of application of Part VI (as per Article 19(10)), along with information regarding the date(s) on which such cases will be considered to have been presented to the relevant competent authority. [Article 36(1)(b) of the Multilateral Convention]