Agreement on new council directive on double taxation dispute resolution


During its meeting on 23 May 2017, the ECOFIN Council reached an agreement on a proposal for a new system for resolving double taxation disputes within the EU.

Based on the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (the EU Arbitration Convention – 90/436/EEC), the proposed Directive aims at improving the mechanism to resolve disputes between Member States that arise from the interpretation and application of double tax treaties and the EU Arbitration Convention. The proposal introduces dispute resolution mechanisms that are mandatory and binding, with an effective conclusion of the procedure within clear and well-defined time limits. The proposed Directive thereby aims for compliance costs for business being reduced to a minimum.

The proposal gives the possibility to the taxpayer to initiate a mutual agreement procedure (within clear timelines), under which member states have to reach an agreement in principle within a timeframe of two years (with the possibility to extend it with one year). The proposal also sets out a clear process and timeline for the Members States to acknowledge receipt of a complaint and to take a decision on the acceptance or rejection of the complaint. If the involved member states fail to do reach an agreement, the arbitration procedure is launched to resolve the dispute within specified timelines. An advisory panel of independent arbitrators will provide a binding opinion for eliminating the double taxation unless the member states involved agree to an alternative solution.

Once the European Parliament has given its opinion on the Directive and the Council has given its final vote, the Directive has to be transposed by 30 June 2019 in national law and will apply to complaints submitted after this date (in relation to questions to the tax year starting on or after 1 January 2018). Nevertheless member states can apply the directive to earlier tax years if they are willing to do so.

It is expected that the mechanism proposed by the Directive will result in more legal certainty combined with a reduction of time required to resolve disputes. This should result from the clear timelines set for acceptance and reaching an agreement and the guarantee of a final decision on disputes that fall within its scope.

The final Council compromise text can be found here. For more insights on double taxation dispute resolution, and to understand the implications for your organisation please contact Jonas Van de Gucht.