European Council agrees to tax dispute resolution mechanism

The EU Economic and Financial Affairs Council agreed on Wednesday to implement a new mechanism for settling disputes involving double taxation. The new directive is designed to improve the EU’s system for resolving disagreements between EU member states over the interpretation of agreements for eliminating double taxation.

The dispute resolution mechanisms in the new directive are mandatory and binding, they set time limits for dispute resolution, and they create an obligation that the dispute be resolved.

Under the directive, the first step is a “mutual agreement procedure,” initiated by the taxpayer. At this step, member states have two years to reach an agreement to resolve the dispute. If they fail to reach an agreement, the next step is arbitration, which involves a panel of three to five independent arbitrators, plus representatives of the member states involved. The arbitration panel will issue an opinion that is binding on the member states, unless they can agree on an alternative resolution.

EU member states have until June 30th 2019 to implement the directive through national legislation, regulations, and/or administrative procedures, and it will apply to tax years starting on or after January 1st 2018.

The directive now goes to the European Parliament for its opinion, after which the European Council will formally adopt it.

—Alistair Nevius (Alistair.Nevius@aicpa-cima.com) is CGMA Magazine’s editor-in-chief, tax.