“This new system is a big improvement. It will encourage investment by creating a more favourable tax environment and reducing costs for businesses”, said Toomas Tõniste, minister for finance of Estonia, which currently holds the council presidency, according to a press statement issued on on Tuesday 10 October.

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.

Background

The directive stated that:

“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'), can create serious tax obstacles for businesses operating across borders. They create an excessive tax burden for businesses, and are likely to cause economic distortions and inefficiencies and to have a negative impact on cross-border investment and growth. For this reason, it is necessary that there are mechanisms in the Union that ensure the effective resolution of disputes concerning the interpretation and application of such bilateral tax treaties and the Union Arbitration Convention, in particular disputes leading to double taxation.”

It continued:

“The resolution of disputes should apply to different interpretation and application of bilateral tax treaties and of the Union Arbitration Convention – in particular to different interpretation and application leading to double taxation. This should be achieved through 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. Member States should be encouraged to use non-binding alternative dispute resolution forms, such as mediation or conciliation, during the final stages of the mutual agreement procedure period. In the absence of an agreement within a certain time frame, the case should be submitted to a dispute resolution procedure. The choice of the method for dispute resolution should be flexible, which could be either through ad hoc structures or through more permanent structures. Dispute resolution procedures could take the form of an Advisory Commission, consisting of both representatives of the tax authorities concerned and independent persons of standing, or could take the form of an Alternative Dispute Resolution Commission (the latter providing for flexibility in the choice of dispute resolution methods). Also, where appropriate, Member States could choose, through bilateral agreement, to use any other dispute resolution process, such as the 'final offer' arbitration process (otherwise known as 'last best offer' arbitration) to solve the dispute in a binding manner. The tax authorities should take a final binding decision by reference to the opinion of an Advisory Commission or Alternative Dispute Resolution Commission.”