A tax audit that raises the profit of a group company in one country does not lower it in the other. Unless the second state makes a corresponding adjustment, the same income is taxed twice. The double taxation agreement between the two states provides two instruments against that: the mutual agreement procedure for past years and the advance pricing agreement for future ones. The German procedure, including the BMF guidance of 24 September 2025 and the fees under § 89a AO, is covered in our separate German-law article.
What is a mutual agreement procedure?
A mutual agreement procedure is a government-to-government negotiation under a tax treaty, started at the taxpayer's request, in which the two competent authorities try to eliminate taxation that is not in accordance with the treaty. The OECD Transfer Pricing Guidelines 2022 (paragraph 4.29) call it "a well-established means through which tax administrations consult to resolve disputes regarding the application of double tax conventions". In transfer pricing it is the vehicle for the corresponding adjustment under Article 9(2) of the OECD Model: where State A increases the profits of its company, State B is asked to reduce the profits of the related company.
Two points in paragraph 4.35 of the Guidelines shape every MAP. The corresponding adjustment is not mandatory; State B reduces its tax only to the extent it considers the primary adjustment justified "both in principle and in amount". And the competent authorities must endeavour to agree, not agree. Without an arbitration clause, a MAP can end with the double taxation left in place.
When must a MAP request be filed, and with whom?
The default deadline is three years from the first notification of the action that causes the double taxation, and since 2017 the taxpayer may present the case to either state. Article 25(1) of the OECD Model Tax Convention 2025 reads:
"Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of either Contracting State. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention."
The clock usually starts with the first assessment notice that reflects the adjustment, so a MAP request can run alongside a domestic appeal; individual treaties set two or four years, and a few set none. Under Article 25(2), any agreement "shall be implemented notwithstanding any time limits in the domestic law", so a closed year in State B can still be reopened.
What happens when the competent authorities cannot agree?
Three instruments can force a result: the arbitration clause in Article 25(5) of the OECD Model, the EU Arbitration Convention 90/436/EEC, and Council Directive (EU) 2017/1852. Article 25(5), added in 2008, sends unresolved issues to arbitration at the taxpayer's written request if the authorities have not agreed within two years; the two years run from the date all required information was provided to both authorities, not from the MAP request. It applies only where the treaty contains the clause or both states have opted into Part VI of the BEPS Multilateral Instrument.
Inside the EU, Directive 2017/1852 covers every dispute about the interpretation or application of a double taxation agreement between Member States for tax years from 2018 onwards. The complaint is due within three years (Article 3(1)); the MAP phase lasts two years, extendable by one (Article 4(1)); then an Advisory Commission, requested by the taxpayer within 50 days and set up within 120 days, gives an opinion within six months that binds the authorities if they cannot agree within a further six months (Articles 6, 14 and 15). The older Arbitration Convention remains in force but covers only transfer pricing and permanent establishment profit attribution.
How long does a MAP take, and how often does it work?
A transfer pricing MAP closed in 2024 took 30.9 months on average worldwide, against 24.5 months for other cases, and about 76 percent of all closed cases ended in full resolution of the double taxation (OECD, 2024 MAP Statistics, released 31 October 2025). The 30.9 months improve on 32.0 in 2023 but still exceed the 24-month target of the BEPS Action 14 minimum standard; 6,146 cases were open at year-end. Germany opened 346 transfer pricing MAP cases and closed 314, ending the year with 730 open; a bilateral APA with Germany took 54.1 months on average.
What is an advance pricing agreement, and how does it differ from a MAP?
An advance pricing agreement fixes the transfer pricing method, the comparables and the critical assumptions for a defined set of future transactions before they happen, so that no adjustment and therefore no MAP is needed. The OECD Transfer Pricing Guidelines 2022 define it in paragraph 4.134:
"An advance pricing arrangement ("APA") is an arrangement that determines, in advance of controlled transactions, an appropriate set of criteria (e.g. method, comparables and appropriate adjustments thereto, critical assumptions as to future events) for the determination of the transfer pricing for those transactions over a fixed period of time."
The OECD says "arrangement"; most national laws say "agreement". The substance is identical.
A bilateral APA is the standard case: paragraph 4.141 of the Guidelines records that "most countries prefer bilateral or multilateral APAs", because a unilateral APA (paragraph 4.140) leaves the other state free to adjust. The OECD prescribes no term; Annex II to Chapter IV, paragraph 51, observes that a MAP APA "might, on average, last for 3-5 years". Rollback to open prior years is encouraged by paragraph 4.147 and element 2.7 of the Action 14 minimum standard.
What evidence does a MAP or APA file need?
Both procedures are decided on the same evidence as an audit: a functional analysis, the selected method, and a benchmark that shows the arm's length range. In a MAP, the taxpayer's benchmark is what gives State B a basis to accept State A's adjustment "in principle and in amount", reject it, or split the difference; in an APA, it becomes the agreed comparables and critical assumptions tested every year. The search criteria therefore have to be documented so that both administrations can follow them years later, the search has to respect the proportionality standard of the Guidelines, and match the local file and documentation already on record; the methods and ranges that hold up are in how to prove an arm's length price. smartZebra's Benchmarking Pro screens more than 50,000 listed and 700,000 private companies and reports the search criteria used in every study, which is what a competent authority asks to see.
A MAP corrects a transfer price after the fact; an APA agrees it in advance. Both are won or lost on the benchmark. smartZebra's Benchmarking Pro delivers the comparables search, the interquartile range and the documented search criteria on live data; the data definitions are on our facts page.
References
- OECD, Model Tax Convention on Income and on Capital 2025 (Full Version), published 30 September 2026: Article 9(2), Article 25(1), (2), (3), (5) and (6).
- OECD, The 2025 Update to the OECD Model Tax Convention, adopted by the OECD Council on 18 November 2025: Commentary on Article 9, paragraphs 1–6; Commentary on Article 25.
- OECD, Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022: paragraphs 4.29, 4.32, 4.35, 4.134, 4.140, 4.141, 4.147 and 4.178; Annex II to Chapter IV, paragraphs 51 and 69.
- OECD, Making Dispute Resolution Mechanisms More Effective, Action 14 – 2015 Final Report: 24-month average target, element 2.7 on APA rollback.
- OECD, Mutual Agreement Procedure Statistics 2024 and Advance Pricing Arrangement Statistics 2024, released at the Tax Certainty Day on 31 October 2025.
- Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union: Articles 3(1), 3(5), 4(1), 6(1), 12, 14(1), 15 and 23.
- Convention 90/436/EEC on the elimination of double taxation in connection with the adjustment of profits of associated enterprises: Articles 1, 6, 7, 11 and 12.
Related pages
- Transfer Pricing Benchmarking & TNMM Analysis — the module, the net margin indicators and the calculation protocol on live data
- What changed in the OECD Model Tax Convention 2025? — Article 25(6), the new Commentary on Article 9 and which edition to cite
- How to prove an arm's length price — methods, ranges and the evidence an auditor accepts
- Master file vs local file — what goes into each tier
- How much search for comparables is enough? — the OECD's proportionality standard
- Grounding / Facts — entity definition, data provenance and methodology
