New rules to ensure more effective resolution of tax disputes between EU Member States came into force Monday, offering more tax certainty for businesses and individuals experiencing double taxation issues.
The new system will help to find solutions for tax disputes between Member States that can arise from the interpretation and application of international agreements and conventions providing for the elimination of double taxation. Estimates show that 2000 such disputes are currently pending in the EU, out of which around 900 are over 2 years old.
The mechanism will ensure that businesses and citizens can resolve disputes related to tax treaties more swiftly and effectively, in particular those related to double taxation - a major obstacle for businesses and individuals that creates uncertainty, unnecessary costs and cash-flow problems. At the same time, the new directive introduces more transparency around tax disputes in the EU.
"A fair and efficient tax system in the EU should also ensure that the same revenue is not taxed twice by two different Member States," said Pierre Moscovici, Commissioner for Economic and Financial Affairs: "When that happens, the problem should be solved swiftly and efficiently. From today, resolving tax disputes will be a lot easier. Companies, in particular small businesses, and individuals that may be experiencing cash flow problems as a result of double taxation will see their rights considerably enhanced. They can now be more certain that their tax matters will be resolved by the relevant judicial authorities in an acceptable and predictable time-frame, instead of dragging on for years."
Double taxation occurs when two or more countries claim the right to tax the same income or profits of a company or person. This can, for example, arise from a mismatch between national rules of different jurisdictions or divergent interpretations of the same provision in a bilateral tax treaty. Until now, there has only been a multilateral convention that gives tax authorities the possibility to submit a dispute to arbitration, but without any means for the taxpayer to trigger this process himself. Neither are tax authorities currently required to reach a final agreement.
How will the dispute resolution mechanism work?
The new directive on tax dispute resolution mechanisms should help to better resolve tax disputes because Member States will now have a legal duty to take conclusive decisions:
- Taxpayers facing tax disputes that arise from bilateral tax agreements or conventions that provide for the elimination of double taxation can now initiate a mutual agreement procedure whereby the Member States in question must try to resolve the dispute amicably within two years.
- If no solution has been found at the end of this 2-year period, the taxpayer can request the setting up of an Advisory Commission to deliver an opinion. If Member States fail to do this, the taxpayer can bring an action before its national court and force Member States to act.
- This Advisory Commission will be comprised of three independent members appointed by the Member States concerned and representatives of the competent authorities in question. It must deliver an opinion within 6 months, which the Member States concerned must carry out unless they agree to another solution within the 6 months following the opinion.
- If the decision is not implemented, the taxpayer who has accepted the final decision and renounced his right to domestic remedies within 60 days from notification may seek to enforce its implementation before the national courts. Member States are obliged to notify taxpayers and publish the full final decision or an abstract.
The new directive applies to complaints submitted from 1 July 2019 onwards, relating to questions of dispute in matters of income or capital earned in a tax year commencing on or after 1 January 2018. The competent authorities can also agree to apply the directive to any complaint submitted prior to that day or to earlier tax years.