#FairTaxation: EU finance ministers agree position to resolve double-taxation disputes

Today (24 May), EU finance ministers have agreed on a new system for resolving double taxation disputes, writes Catherine Feore.

"This directive is an important part of our plan for strengthening tax certainty and improving the business environment in Europe," said Edward Scicluna, Maltese minister for finance - Malta currently holds the Council presidency.

Vice-President Dombrovskis said that the compromise agreement provided mandatory resolution of double-taxation disputes, if necessary by way of arbitration with strict and enforceable timelines: “At present, most member states have bilateral tax treaties with each other to relieve double taxation when it occurs, and there are procedures to resolve disputes when necessary. However, these procedures are long, costly and do not always result in an agreement.”

Dombrovskis added: “The idea that taxes should be paid where actual economic activity is taking place is now well-established. Making sure that profits are not taxed twice is an important complement to that.”

The draft directive requires dispute resolution mechanisms to be mandatory and binding and an obligation to reach a result. An important aspect is the creation of an appeal court, to ensure the independence of those appointed to any appeal court it was agreed that arbitrators must not be employees of tax advice companies or have given tax advice on a professional basis. Unless agreed otherwise, the panel chair should normally be a judge.

There is also an obligation for states to publish their judgements to add to transparency.

The Council endorsed a compromise on the scope of the directive, in particular the types of disputes that should be covered. The Council agreed on a broad scope but with the possibility of excluding disputes that do not involve double taxation.

The finance ministers also discussed the possibility of setting up a permanent structure to deal with dispute resolution cases if member states so agree.

Next steps

Agreement was reached at a meeting of the Economic and Financial Council. The Council will adopt the directive once the European Parliament has given its opinion.

The Council will adopt the directive once the European Parliament has given its opinion.

Member states will have until 30 June 2019 to transpose the directive into national laws and regulations. It will apply to complaints submitted after that date on questions relating to the tax year starting on or after 1 January 2018. The member states may however agree to apply the directive to complaints related to earlier tax years.

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