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EU green light for new rules to resolve tax disputes

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EU green light for new rules to resolve tax disputes

Dombrovskis - Toniste - Photo EU Council

(LUXEMBOURG) - EU finance ministers gave their green light Tuesday to a new system for resolving resolve tax disputes between Member States, including over double taxation, seen as a major obstacle for businesses.

The decision aims to ensure that businesses and citizens can resolve disputes related to the interpretation of tax treaties more swiftly and effectively. It also covers issues related to double taxation, which creates uncertainty, unnecessary costs and cash-flow problems for businesses.

Double taxation refers to cases where two or more countries claim the right to tax the same income or profits of a company or person. It can occur, for example, due to a mismatch in national rules or different interpretations of a bilateral tax treaty with regards transfer pricing arrangements.

The new system is a big improvement, according to Estonian minister for finance Toomas Toniste, for the EU presidency: "It will encourage investment by creating a more favourable tax environment and reducing costs for businesses," he said.

A wider range of cases will now be covered and EU Member States will now have clear deadlines to agree on a binding solution, giving citizens and companies more timely decisions. Member States will have a legal duty to take conclusive and enforceable decisions under the improved dispute resolution mechanism. If not, the national courts will do this for them.

The agreement will ensure that taxpayers faced with tax treaty disputes can initiate a procedure whereby the Member States in question must try to resolve the dispute amicably within two years.

If at the end of this period, no solution has been found, the Member States must set up an Advisory Commission to arbitrate. If Member States fail to do this, the taxpayer can bring an action before the national court to do so.

This Advisory Commission will be comprised of 3 independent members and representatives of the competent authorities in question. It will have 6 months to deliver a final, binding decision. This decision will be immediately enforceable and must resolve the dispute.

Estimates show that there are currently around 900 double taxation disputes in the EU today, estimated to be worth EUR 10.5 billion.

2017 directive on double taxation dispute resolution mechanisms

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