Bahrain issues Guidance on the Mutual Agreement Procedure

Key developments

On 1 April 2020 the Kingdom of Bahrain issued Guidance on the Mutual Agreement Procedure (MAP).


MAP is a procedure through which competent authorities (CAs) consult and interact to resolve international tax disputes including transfer pricing disputes and to avoid double taxation arising from actions of one or both of the contracting states resulting in taxation not in accordance with the applicable Double Taxation Convention (DTC). Please note that all Bahrain’s DTCs contain a MAP provision.

The Process

The Guidance supplements the provisions in that it details the process of initiating the MAP in the Kingdom, the steps involved as well as a timeline. For a MAP to be accepted, the following conditions need to be met:

  • The issue or transaction relates to a jurisdiction with which Bahrain has a DTC
  • It is apparent that the actions of one or both jurisdictions resulted in or will result in taxation not in accordance with the DTC
  • The taxpayer notifies Bahrain CA (BCA) within the time limits specified in the applicable DTC (to the extent that no timeline is specified, the Kingdom will a three-year time period as specified in the Guidance)

The MAP can be initiated by a taxpayer of CA of either contracting state and can submitted by mail, e-fax or e-mail in either Arabic or English to the Foreign Tax Relations Directorate (FTRD) at the National Bureau for Revenue (NBR). The full list of the formal minimum requirements for a MAP request are detailed in the Guidance.

Making dispute resolution mechanism more effective is one of the Actions (14) of the Base Erosion and Profit Shifting (BEPS) initiative developed by the Organization for Economic Co-operation and Development (OECD). The measures developed under Action 14 of the BEPS Action Plan aim to strengthen the effectiveness and efficiency of the MAP process. Bahrain joined the OECD Inclusive Framework on BEPS on 11 May 2018. Whilst the Kingdom has not yet adopted the proposed changes, the Guidance provided is in line with the OECD’s approach.

Transfer Pricing and MAP

From a transfer pricing perspective, to obtain relief from taxation that is not in accordance with the DTC, documentation as described in domestic legislation of the taxpayer’s jurisdiction of residence should be provided to CA along with the details of the related party in the respective state. DTC authorizes the tax authorities of a jurisdiction to make primary adjustments however this will not result in economic double taxation as there are no income tax rules in Bahrain (except for upstream oil & gas operations). Presently, a corresponding adjustment from Bahrain CA will not be a relief measure however MAP will provide a mechanism for Bahraini entities to approach CAs in case of transfer pricing disputes.

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