EU finance ministers approve directive introducing mechanism for tax dispute resolution

One of the main problems that businesses operating across borders currently face is double taxation. There are mechanisms already in place that deal with the resolution of double taxation disputes. Specifically it concerns the Mutual Agreement Procedures which are foreseen in Double Taxation Conventions as well as in the Union Arbitration Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises. However, in practice there are cases that are prevented from entering existing mechanisms and get stuck without the taxpayer being informed about the reasons or that are not resolved at all. Moreover, the traditional methods of resolving disputes no longer fully fit with the complexity and risks of the current global tax environment.

The proposed directive aims at broadening the scope and improving procedures and mechanisms in place. On the one hand, the member states are provided with more detailed procedural provisions for the elimination of double taxation disputes, but at the same time they are left with sufficient flexibility to agree between them on a mechanism of their choice. The situation for the taxpayer is improved in several aspects. According to the proposed directive taxpayers get enhanced rights to enforce – subject to certain criteria – the setting up of resolution mechanisms, will be better informed about the procedure and can rely on the member states being forced to achieve binding results. The proposed directive adds an explicit obligation of result for member states as well as a clearly defined time-limit.

The proposed directive defines the following three key procedural stages:

The directive allows for a mutual agreement procedure initiated by the complaint of the taxpayer, under which the member states shall freely cooperate and reach an agreement on the double taxation dispute within 2 years. If the mutual agreement procedure fails, it automatically leads to a dispute resolution procedure with the issuance of a final mandatory binding decision by the competent authorities of the member states involved.

An important date for member states becomes 30 June 2019. By that deadline, all member states shall bring into force the directive into their national law.