The Council of the European Union has proposed a draft EU Directive, to be in effect by June 30 2019, that would resolve double taxation disputes between Member States. A summary of the Draft Directive is provided, as well as referenced herein.
This proposal is based upon the foundation of the Union Arbitration Convention (90/436/EEC) re: cross-border tax disputes.
- 3 years, from first notification, to file a complaint by the taxpayer
- Each competent authority (CA) acknowledges receipt within 2 months
- Additional 3 months by CA’s to request additional information, by which the taxpayer has 3 months to provide
- Approx. 6 months later, CA’s decide to accept or reject the complaint; or a CA can decide to resolve unilaterally by which the Directive is terminated
- Taxpayer may appeal per national rules a rejection of the complaint
- CA’s try to resolve issue within 2 years, which may be extended by 1 year
- Upon taxpayer’s request, an Advisory Commission shall be established where the complaint is rejected by not all of the relevant CA’s, or a failure by CA’s to reach agreement. This request can be denied by a Member State on a case by case basis where a question of dispute does not involve double taxation.
- Advisory Commission = Chair, 1-2 representatives of each CA, and 1-2 independent persons by each CA
- Advisory Commission to adopt a decisions within 6 months
- CA’s may, alternatively, set up an Alternative Dispute Resolution Commission instead of the Advisory Commission; this commission has freedom of techniques to settle
- Professional secrecy standards are prescribed
- Advisory or Alternative Commission opines in 3-6 months
- CA’s shall agree within 6 months of the opinion on how to resolve the complaint; they can decide on a decision that deviates from the opinion or be bound by the opinion
- Final decision does not constitute a precedent
- (Redacted) decision is published and maintained in an online central repository
- Evaluation of process by June 30, 2024 and issue a report
As the key point summary infers, there are many provisions in the Draft Directive, requiring a proactive effort by the taxpayer and relevant CA’s. The Directive can be reviewed via the attached link:
The European Commission has recently released a public consultation on improving double taxation dispute resolution mechanisms, with comments accepted through 10 May 2016. It is a process / Best Practices approach to enact future efficiencies. A summary story and consultation links are provided for reference:
Click to access survey_consult_doc_double_tax_en.pdf
- Double or multiple taxation by EU Member States is recognized as a barrier to operate freely across borders.
- A legislative proposal is expected by the end of 2016, following the comment period.
- The Mutual Agreement Process (MAP) currently is not bound to reach a solution.
- The EU Arbitration Convention (re: transfer pricing cases and permanent establishment profit attribution) is acknowledged as a current process, but limited in scope.
- The last such public consultation (2010) resulted in an arbitration provision, although it has not been mandated in double tax conventions.
- Stakeholders’ views are requested on the relevance of removing double taxation, EU objectives and proposed solutions.
This document is pivotal in establishing practical and efficient EU dispute resolution mechanisms ongoing, and all interested parties should submit thoughtful input.
The proposal, as noted, would only be effective between EU Member States, not between one Member State and another non-EU jurisdiction or between non-EU jurisdictions. The EU has been a strong proponent in leading global best practices in the post-BEPS environment. Therefore, global consistency of the EU approach is also encouraged, especially by countries having no such dispute mechanism.
Additionally, other countries’ need to rethink sovereignty arguments in trying to evade / negate the effect that such transparent measures would have on their ability to address local tax practices.
The European Commission (EC) and European Parliament (EP), including the TAXE Committee on Rulings established by the EP, have recently endorsed many provisions that would normally require the unanimity of approval by the Member States. Knowing this has not resulted in success with prior initiatives, a renewed focus may be taking place re: Article 116 of the Treaty on the Functioning of the European Union (TFEU) which empowers the EC/EP to issue a Directive accordingly.
Article 116 TFEU:
Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member Sates is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.
If such consultation does not result in an agreement eliminating the distortion in question, the EP and the EC, acting in accordance with the ordinary legislative procedure, shall issue the necessary directives. Any other appropriate measures provided for in the Treaties may be adopted.
The TFEU is the same legal mechanism used to address State Aid, and may also be the choice of implementation to establish Directives for one or more of the following initiatives:
- EU Common Corporate Tax Base (CCTB)
- Country-by-Country (CbC) reporting, public disclosure
- Tax rulings, (redacted) public disclosure
- Permanent Establishment (PE) definition
- Anti-BEPS Directive, transforming OECD “soft law” into an EU legislative framework
- Interest & Royalty Directive requiring confirmation of EU tax being paid elsewhere
- EU Dispute Resolution approach
Everyone should monitor the EC, EP and TAXE for continuing developments, as they may form the basis for new global standards to enact the intent of BEPS initiatives.