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Tax Dispute Resolution Mechanisms in the European Union

On October 10, 2017 the Council of the European Union has adopted the Directive EU 2017/1852 which lays down rules on a mechanism to resolve disputes between Member States when those disputes arise from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and, where applicable, capital. It also lays down the rights and obligations of the “affected persons” when such disputes arise, where the term “affected person” means any person, including an individual, that is a resident of a Member State for tax purposes, and whose taxation is directly affected by a question in dispute.

According to the Council, situations in which different Member States differently interpret or apply the provisions of bilateral tax agreements and conventions or the Convention on the elimination of double taxation in connection with the adjustments of profits of associated enterprises (‘the Union Arbitration Convention 90/436/EEC’), create serious tax obstacles for businesses operating across borders.

The mechanisms currently provided for in bilateral tax treaties and in the Union Arbitration Convention might not achieve the effective resolution of such disputes in all cases in a timely manner. The monitoring exercise carried out as part of the implementation of the Union Arbitration Convention has revealed some important shortcomings, in particular as regards access to the procedure and as regards the length and the effective conclusion of the procedure.

In order to ensure that mechanisms for dispute resolution are comprehensive, effective and sustainable, the Directive establishes a procedure under which, as a first step, the case is submitted to the tax authorities of the Member States concerned, with a view to settling the dispute by using a “mutual agreement procedure” (art. 4) . In the absence of an agreement within a certain time frame, the case should be submitted:

  • to a “dispute resolution procedure” (art. 6) which takes the form of an Advisory Commission, consisting of both representatives of the tax authorities concerned and independent persons of standing, or:
  • to an “alternative dispute resolution commission” (art. 10) in the form of a committee that is of a permanent nature to deliver an opinion on how to resolve the question in dispute.

This Directive shall apply to any complaint submitted from 1 July 2019 onwards relating to questions of dispute relating to income or capital earned in a tax year commencing on or after 1 January 2018. Competent authorities of Member States concerned may however agree to apply this Directive with regard to any complaint that was submitted prior to that day or to earlier tax years.

Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 30 June 2019 at the latest.

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Maurizio Bottoni's picture

Maurizio Bottoni is the senior partner of Interconsulting. As a consultant in one of the Big Four he has developed a deep knowledge of the Italian and International tax law, through the involvement in operations and reorganization of multinationals. Extraordinary transactions and international issues are his daily business.