New Statement of Practice 1/11 describes the UK's practice in relation to methods for reducing or preventing double taxation and supersedes Tax Bulletins 25 and 31 which previously provided the guidance in this area.

The SOP considers the use of mutual agreement procedure (MAP) under the relevant UK Double Taxation Convention and/or the EU Arbitration Convention and also describes the UK's approach to the use of arbitration where MAP is unsuccessful. It has particular relevance to transfer pricing and multinational enterprises.

Chapter IV of the OECD Guidelines contains details of administrative approaches to avoiding and resolving transfer pricing disputes. One approach to which it refers is that provided for under MAP, which is described and authorised by Article 25 of the OECD Model Convention.

Article 25(1) has broad application and provides for MAP where a taxpayer considers he has been or will be taxed other than in accordance with the Convention, for example in a way contrary to Article 24, the Non-Discrimination Article.

More specifically, to eliminate double taxation in transfer pricing cases, tax administrations may consider requests for corresponding adjustments. The Convention recommends that the competent authorities of treaty partner states consult each other if necessary to determine corresponding adjustments.

In 2010 the OECD introduced a new version of Article 7 to the OECD Convention. Article 7 deals with the attribution of profits to permanent establishments and the new version includes an avenue for entering MAP.

SOP 1/11 takes account of these changes and supersedes previous guidance in this area.

HMRC Statements of Practice can be found at http://www.hmrc.gov.uk/practitioners/sop.pdf