On 1 December 2023, the Belgian tax authorities issued a circular letter (2023/C/95) relating to the settlement of cross-border tax disputes in the European Union. This circular letter provides clarification to help overcome the difficulties that may arise in the interpretation or application of the law of 9 May 2019 implementing Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union.
Background
As a reminder, Belgium has concluded bilateral double taxation treaties (DTT) with most other EU Member States. The purpose of a DTT is to allocate taxation power between Belgium and the partner state based on the nature of the income and its source. A different interpretation or application of the provisions of these DTTs by different Member States can create an excessive tax burden which forms a serious obstacle for taxpayers operating across borders.
A taxpayer that is subject to double taxation or to taxation that is not in accordance with the provisions mentioned in the DTT, has recourse through the following legal means:
- The domestic law of the state imposing the double taxation or taxation deemed not in accordance with the DTT;
- The mutual agreement procedure provided for by the DTT, or in the case of transfer pricing adjustments between associated companies or profit allocation between head offices and their permanent establishments, through European Convention No 90/436/EEC of 23 July 23 1990, concerning the elimination of double taxation in connection with the adjustment of profits of associated enterprises, commonly known as the ‘Arbitration Treaty’;
- The law of 2 May 2019, that transposes Directive (EU) 2017/1852 of the Council of 10 October 2017, regarding mechanisms for the resolution of tax disputes in the European Union into Belgian law.
The newly issued circular letter focuses on this third option. For a broader explanation on dispute resolution under DTTs and the Arbitration Treaty, please refer to the circular letter of 7 March 2018 (2018/C/27).
The EU Directive has a more extensive scope than the Arbitration Treaty and also implements clear and shorter timeframes. Similar to the Arbitration Treaty, it provides for an arbitration mechanism and hence an obligation for Member States to reach a solution. The Directive contains more safeguards in view of taxpayers’ rights by providing for appeal possibilities for taxpayers in order to assure that competent authorities apply the provisions of the Directive. See also our newsflash regarding the formal adoption of the EU Directive on tax dispute resolution mechanisms (https://news.pwc.be/eu-directive-on-tax-dispute-resolution-mechanisms-formally-adopted/) .
How it works
A complaint can be filed by any person, tax resident of a Member State, who is considered to be subject to double taxation or (potential) taxation that is not in accordance with the applicable DTT. Contrary to mutual agreement procedure requests made under DDTs or the Arbitration Treaty, a complaint is subject to additional formal requirements. The Belgian competent authority has six months to examine whether or not a complaint is admissible. It is possible that the competent authority in Belgium decides in this phase to handle the dispute unilaterally. In practice, and as specified by the circular letter, such a unilateral solution entails that the competent authority requests that the advisor-general grants a (partial) tax relief.
If a complaint is accepted by both competent authorities and there is no unilateral relief, the competent authorities will endeavour to resolve the issue through the mutual agreement procedure. If there is an agreement within the given timeframe, they will formulate a binding agreement which will be enforceable for the taxpayer if the latter agrees with the outcome of the procedure. The taxpayer must then waive their right to pursue other legal remedies.
If a complaint is rejected by the Belgian competent authority and the other competent authorities involved because of admissibility issues, the taxpayer can initiate legal proceedings against this decision by submitting a petition to the court of first instance as in summary proceedings. If the right of appeal is exercised, the decision of the relevant court will be taken into consideration for the initiation of the arbitration procedure.
If a complaint is not rejected by all the competent authorities involved, and if there is no appeal pending against the rejected complaint or in the event that the taxpayer waived their right to appeal the rejection of the complaint, the taxpayer can request an arbitration procedure. If the mutual agreement procedure does not solve the double taxation situation, the taxpayer can also request an arbitration procedure. In both situations, an advisory committee will be appointed to take a decision regarding the admissibility of the complaint or to advise on the resolution of the dispute. The competent authorities can also decide to establish an alternative dispute resolution committee to provide advice on the resolution of the dispute. It is up to the Belgian competent authority to inform the taxpayer regarding the decision that has been made after this procedure. The decision of the committee is binding. The final decision will be implemented on the condition that the taxpayer, within 60 days from the date of notification of the final decision, accepts the final decision and waives the right to pursue any legal remedy.
Key takeaway
The Directive provides for an additional procedure that aims to resolve cross-border disputes and contains more safeguards for taxpayer’s rights as well as stricter deadlines.
Recent statistics published by the OECD demonstrate that in Belgium the mutual agreement procedure works well and that there is no immediate need for arbitration (see also https://www.oecd.org/tax/dispute/map-statistics-belgium.pdf). Therefore, the practical application of the Directive seems somewhat insignificant at present, since the mutual agreement procedure under the DTT and Arbitration Treaty generally operates effectively.
For more insights on the impact of the circular letter, or details on the mutual agreement procedure or arbitration, please do not hesitate to reach out to your PwC trusted advisor.
See also:
Markey, S. De Baets en V. De Brabanter, “Nieuwe richtlijn over beslechten van belastinggeschillen stelt rechten belastingplichtige voorop”, Fisc. Act. 2017, nr. 40, p. 9-12.
De Brabanter, L. Cassimon en A. Van den Berghe, “Procedure tot onderling overleg: fiscus verduidelijkt, maar beperkt tegelijkertijd”, Acc. en Fisc. 2018, nr. 14.
Markey, V. De Brabanter en L. Cassimon, “Richtlijn met nieuwe procedure ter beslechting van belastinggeschillen omgezet”, Fisc. Act. 2019, nr. 22, p. 9-10.
