EU agrees double taxation dispute resolution system
The European Council has agreed on a new system for resolving double taxation disputes within the EU, in a bid to reduce the difficulty and the tax burden of doing business across borders
The proposal sets out to improve the mechanisms used for resolving disputes between member states when disputes arise from the interpretation of agreements on the elimination of double taxation.
Edward Scicluna, minister for finance of Malta, which currently holds the Council presidency, said: ‘This directive is an important part of our plan for strengthening tax certainty and improving the business environment in Europe.’
The draft directive requires dispute resolution mechanisms to be mandatory and binding, with clear time limits and an obligation to reach results. The aim is to create a tax environment where compliance costs for businesses are reduced to a minimum.
The text allows for a 'mutual agreement procedure' to be initiated by the taxpayer, under which member states must reach an agreement within two years. If the procedure fails, an arbitration procedure is launched to resolve the dispute within specified timelines.
For this, an advisory panel of three to five independent arbitrators is appointed together with up to two representatives of each member state. The panel (advisory commission) issues an opinion for eliminating the double taxation in the disputed case, which is binding on the member states involved unless they agree on an alternative solution.
The Council endorsed a number of options covering some issues. For example, while it has agreed on a broad scope for the types of cases which can be considered, there is the option, on a case-by-case basis, of excluding disputes that are judged not to involve double taxation.
It also agreed the pool of independent arbitrators must be made up of 'independent persons of standing'. Arbitrators must not be employees of tax advice companies or have given tax advice on a professional basis. Unless agreed otherwise, the panel chair must be a judge.
In addition, the Council left open the possibility of setting up a permanent structure to deal with dispute resolution cases if member states so agree.
Agreement on the proposals was reached at a meeting of the economic and financial council. The Council will adopt the directive once the European Parliament has given its opinion.
Member states will have until 30 June 2019 to transpose the directive into national laws and regulations. It will apply to complaints submitted after that date on questions relating to the tax year starting on or after 1 January 2018. The member states may however agree to apply the directive to complaints related to earlier tax years.
The same meeting of the economic and financial council also discussed a proposal for a common corporate tax base (CCTB) in the EU, aimed at reducing the administrative burden of multinational companies.
This would form the first step of an envisaged two-step corporate tax reform, which has proved controversial when originally put forward. Revamping an earlier 2011 proposal, it establishes a single rulebook for calculating companies' corporate tax liability. The presidency confirmed its intention to continue discussions on new elements of the proposal, and that an appropriate degree of flexibility should be provided for.
A separate proposal on tax consolidation (CCCTB) will be considered without delay once the CCTB rulebook has been agreed. The Council will require unanimity to adopt the directive, after consulting the European Parliament.