Contribution to the to UN INC on the Protocol on Dispute Prevention and Resolution

The BMG has produced comments to the public consultation on the Issue Note of Workstream III negotiating the protocol on dispute prevention and resolution.

The increasing complexity of cross-border transactions has led to a surge in international tax disputes, arising in multiple forums—including mutual agreement procedures (MAPs), investor-state dispute settlement (ISDS), and WTO adjudication. While MAPs under tax treaties aim to resolve double taxation conflicts, they have proven ineffective, particularly for developing countries. Binding arbitration, introduced under the OECD’s Multilateral Instrument (MLI), remains unpopular among developing nations due to sovereignty concerns, with few cases actually proceeding to arbitration. Meanwhile, ISDS claims—constituting 15% of known cases (2000–2021)—pose significant risks, as seen in high-value awards like “Yukos v. Russia” ($50 billion). 

The root causes of disputes lie in flawed rules, particularly the arm’s-length principle, which fuels transfer pricing conflicts by treating multinational enterprises (MNEs) as separate entities rather than unitary businesses. A sustainable solution requires replacing this system with formulary apportionment and unitary taxation, ensuring profits are taxed where economic activity occurs. The UN Framework Convention on International Tax Cooperation (UN FCITC) should prioritize dispute prevention through clearer rules, administrative cooperation, and transparent multilateral dialogue.

The UN FCITC must balance sovereignty with enforceable, equitable dispute resolution, learning from past failures to deliver a coherent framework.