18 December 2019
According to the European Commission, there are approximately 900 double taxation disputes pending for 2 years or more in the EU with a value of over €10.5 billion. A double taxation dispute is one in which two or more countries claim the right to tax the same income or profits of a company or person, and typically arises due to conflicting national implementation or interpretation of double taxation agreements within the EU. The delay in resolving such disputes creates uncertainty, unnecessary costs and cash-flow problems for the businesses and individuals involved.
To combat this, the EU Tax Dispute Resolution Directive (2017/1852) (the Directive) came into force on 1 July 2019, which aims to provide a streamlined process to resolve these tax disputes. Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs stated that companies, in particular small businesses and individuals, can ‘now be more certain that their tax matters will be resolved by the relevant judicial authorities in an acceptable and predictable timeframe, instead of dragging on for years’.
Ireland implemented the Directive at national level by way of the European Union (Tax Dispute Resolution Mechanisms) Regulations 2019 (the Regulations).
The regime applies to complaints submitted on or after 1 July 2019 relating to a question in dispute involving income or capital earned in a tax year commencing on or after 1 January 2018. It may also apply to a complaint that is submitted before 1 July 2019, or a complaint involving income or capital earned in a tax year commencing before 1 January 2018 in circumstances where the Revenue Commissioners so agree with the competent authorities in the relevant EU Member States.
Mutual agreement process
The Directive places an obligation on EU Member States to endeavour to resolve the question in dispute by mutual agreement within two years at the request of the tax payer. Complaints may be rejected by the Member States involved if the dispute does not concern a double taxation matter or if there is no actual dispute present.
Where a complaint is accepted and an agreement is reached between the Member States, the relevant authority (in Ireland the Revenue Commissioners) will inform the taxpayer who is then free to accept or reject the agreement.
If the taxpayer accepts the mutual agreement, the Revenue Commissioners will implement that agreement (irrespective of any time limits provided for in Ireland's tax code) but not before the taxpayer renounces any right to any other remedy that may be available under the laws of Ireland or of any relevant EU Member State relating to the question in dispute.
The Regulations provide for the publication of the final mutual agreement decision in its entirety (subject to the consent of the taxpayer) or an abstract of the final decision containing certain information including a description of the issue and the subject matters, the industry sector and a short description of the final outcome.
If the dispute has not been resolved within two years, the taxpayer can request an Advisory Commission to arbitrate on the matter. Recourse may also be had to an Advisory Commission where a mutual agreement has been reached between the Member States but not accepted by the tax payer.
An Advisory Commission will consist of three independent members appointed by the disputing EU Member States and must issue an opinion on the question in dispute within six months. EU Member States may deviate from this opinion but if they cannot reach agreement, the Advisory Commission's opinion will become binding.
While there are already many bilateral mutual agreement procedures in place between EU Member States that can deal with tax disputes, in addition to an EU Arbitration Convention (the Convention), these procedures are limited in terms of scope and authority. These existing procedures may not lead to an effective resolution of tax disputes nor do they always resolve disputes in a timely manner. Under the Convention, there is only scope for complaints regarding transfer pricing or permanent establishment issues to be brought by a tax authority. The Directive is much broader than the Convention and encompasses all double taxation issues. It gives the taxpayer greater influence and streamlines the process across EU Member States.
There are three main aspects of the Directive that critics have praised; the timelines, the taxpayer's increased role and the recourse available for non-implementation. These three attributes have been commended for ensuring the Directive will achieve its goal; that there will be effective dispute resolution for double taxation issues between EU Member States.