The relevance of international tax law has increased significantly due to globalisation and digitalisation. This is reflected in particular in the OECD initiatives to combat aggressive tax structures by internationally active companies (such as base erosion and profit shifting or BEPS) and to tax the digital economy, which are also being discussed at the EU level. The work is being done at the national, and international levels to ensure that internationally coordinated, clear and easily administrable regulations are found for cross-border issues in external tax and income tax law. However, if two countries interpret a double taxation treaty differently or apply it differently, this can lead to double taxation for the concerned taxpayer. In view of the increasing number of such international tax disputes and the insufficient effectiveness of existing dispute settlement mechanisms, the EU Dispute Settlement Directive of 2017 is intended to create further options for resolving double taxation conflicts. It is estimated that there are currently around 900 double tax disputes in the EU, with a value in dispute of around EUR 10.5 billion; showing how necessary efficient dispute resolution mechanisms are. Taxpayers have already been able to combat impending or actual double taxation based on Article 25 of the OECD Model Tax Convention and, within the EU, within the EU Arbitration Convention.
The mutual agreement and arbitration proceedings are the main measures mentioned here. The aim of the 2017 EU Directive is a compulsory and binding arbitration procedure, which has been available only for transfer pricing cases and disputes relating to the accrual of operating profit. The new dispute settlement mechanism put forward by the directive was meant to be applied to all cases of double taxation that fall under an agreement to avoid double taxation of income and assets: this applies to both natural and legal persons. Taxpayers who are confronted with intra-Community tax disputes can apply for the initiation of a mutual agreement procedure within three years of the first notification of the tax dispute. In this procedure, the EU Member States concerned can find a joint solution within two years. If an agreement is reached between the member states, this is an enforceable decision for the taxpayer concerned. On the other hand, if the member states concerned do not reach an agreement on the admitted complaint within two years - with an extension of up to one year to be justified - an arbitration procedure must be carried out. For this purpose, an advisory committee is to be set up by the member states at the request of the person concerned. Member States are free to jointly establish a standing advisory committee to deal with dispute settlement procedures between these states. If necessary, the taxpayer concerned can also get the advisory committee set up via the national courts. The advisory committee issues an opinion on resolving the dispute within six months. The authorities of the Member States concerned also have six months from the issuance of this opinion to reach an agreement on the pending dispute. The authorities are not bound by the opinion of the advisory committee. However, if no corresponding agreement can be reached within this period, the opinion of the advisory committee becomes binding and must be implemented accordingly. The final decision is binding on the Member States concerned and does not set a precedent. The final decision will be implemented provided that the data subject agrees to this decision within 60 days of the date on which the final decision was communicated and, if applicable, to the right to any domestic remedies. If the complaint of the person concerned has been rejected by at least one - but not all - competent authorities, the Member States must also set up an advisory committee at the request of the person concerned. This committee takes a binding decision on the admissibility of the complaint within six months for the member states concerned. If the complaint is declared admissible, the member states must initiate a mutual agreement procedure. If a mutual agreement procedure is not initiated or if no timely agreement is reached within the procedure, the advisory commission also issues a binding and enforceable opinion on the decision on the dispute.
Written by: Ekaterina Kasyanova
Edited by: Elizabeth Cheetham
Published by: Elizabeth Cheetham