Guidance released on new Double Tax Dispute Resolution
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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Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).
In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1
HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
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It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.
This article was first published with ThoughtLeaders4 Private Client Magazine
