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New EU Dispute Resolution Rules Enter Into Force

Friday, July 5, 2019

The EU's new directive on tax dispute resolution mechanisms entered into force on July 1.

The new rules aim at ensuring the quicker and more effective resolution of tax disputes between EU member states and at offering greater certainty to businesses and individuals experiencing double taxation issues. Double taxation occurs when two or more countries claim the right to tax the same income or profits of a company or person.

The EU estimates that there are 2,000 such disputes pending in the EU, 900 of which are over two years old.

The directive applies to complaints submitted from July 1, 2019, relating to questions of dispute in matters of income or capital earned in a tax year commencing on or after January 1, 2018. The competent authorities can also agree to apply the directive to any complaint submitted prior to that day or to earlier tax years.

Under the revised system, taxpayers facing disputes that arise from bilateral double agreements that provide for the elimination of double taxation will be able to initiate a mutual agreement procedure. The member states in question will be required to attempt to resolve the dispute amicably within two years.

If no solution is found within this two-year period, the taxpayer will be able to request the setting up of an Advisory Commission to deliver an opinion. Should the member states fail to act, the taxpayer can bring an action before the state's national court.

An Advisory Commission must deliver an opinion within six months, which the member states concerned must carry out unless they agree to another solution within the six months following the opinion. Member states will be obligated to notify the taxpayer and publish the full final decision or an abstract. If the decision is not implemented, the taxpayer having accepted the final decision may seek to enforce its implementation before the national courts.

Tax Commissioner Pierre Moscovici said: "A fair and efficient tax system in the EU should also ensure that the same revenue is not taxed twice by two different member states. When that happens, the problem should be solved swiftly and efficiently."

"Companies, in particular small businesses, and individuals that may be experiencing cash flow problems as a result of double taxation will see their rights considerably enhanced. They 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."