Guidance released on new Double Tax Dispute Resolution

28 February 2020
Author: JHA

Finance Act 2019 includes enabling legislation for the implementation of Council Directive (EU) 2017/1852 (“Arbitration Directive”).

The Arbitration Directive provides for a mutual agreement procedure (“MAP”) with mandatory binding arbitration for disputes which remain unresolved after 2 years of the case having been presented for MAP. The mechanism largely renders the arbitration provisions in the OECD BEPS Multilateral Instrument redundant as between the EU Member States and builds on the existing intra-EU tax dispute resolution mechanisms under the European Arbitration Convention (90/436/EC).

There are at least two key takeaways of what the introduction of the Arbitration Directive translates into in practical terms:

Firstly, the Arbitration Directive applies to disputes arising from the interpretation and application of double tax treaties. This means that issues relating to, inter alia, withholding taxes or company residence, which were outside the scope of application of the European Arbitration Convention, can be presented for MAP under the Arbitration Directive.

Secondly, the Arbitration Directive addresses a number of shortcomings in the European Arbitration Convention, particularly in relation to the admissibility and effective handling and conclusion of cases presented for MAP. The increased supervision of national courts and of the Court of Justice of the EU is a distinct advantage. For example:

  • Regulation 14 provides a right to appeal against an HMRC’s decision to reject a complaint.
  • Regulation 28 allows the taxpayer to apply to the national court to set up the Advisory Commission or appoint members
  • Regulation 34 provides a right to appeal against HMRC’s failure to give the effect of a final decision of the MAP proceedings.

The Arbitration Directive will apply to disputes relating to income earned or capital gained in a tax period of 12 months commencing on or after 1st January 2018.

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