Opinion Statement FC 2/2024 Responding to the EU Commission Consultation on Dispute Resolution Mechanisms in the European Union

CFE Tax Advisers Europe has published an Opinion Statement responding to a consultation of the European Commission concerning the operation of the Directive on Tax Dispute Resolution Mechanisms in the European Union.

Directive (EU) 2017/1852 on tax dispute resolution mechanisms in the European Union (the “DRM”) was adopted by Member States on 10 October 2017 and is applicable as from 1 July 2019. It lays down rules on a mechanism to resolve disputes between Member States when those disputes arise from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and, where applicable, capital. It also lays down the rights and obligations of the affected persons when such disputes arise.

CFE commented on this matter at several instances, notably on 20 March 2020 to provide practical comments in view of future revisions of the DRM[1], and when the proposed Directive on Double Taxation Dispute Resolution Mechanisms was subject to public consultation in May 2017[2], as well as in the context of the OECD BEPS consultation process in April 2016[3]. This Opinion Statement complements these previous opinion statements.

CFE welcomes the adoption of the DRM which it considers to be a positive development for the protection of taxpayers’ rights as explained in our previous Opinion Statement on this matter. It is however still too early to have sufficient practical experience in relation to the functioning of the DRM as it has only been operational since 1 July 2019. There are nevertheless outstanding issues that, in CFE’s view, merit further consideration. In particular, CFE in its Statement raised the following points:

  • Closer involvement of the taxpayer in the process would increase tax certainty and the trust of taxpayers in these types of dispute resolution procedures;
  • Relationships between taxpayers and tax administrations would be improved if transparency would be reciprocal. Improving tax transparency of tax administrations towards taxpayers would enhance the trust of taxpayers and legal certainty.;
  • Member States and tax administrations should have the duty to provide guidelines to taxpayers on the implementation and application of the DRM;
  • It would also be crucial to remove barriers to entry to certain remedies, such as tax administrations imposing criminal penalties or pushing for settlements by offering better bargaining positions to close the door to MAP;
  • It would be important to ensure that the DRM is an appropriate tool to deal with future disputes related to the application of the Pillar 2 rules as implemented in the EU through Council Directive (EU) 2022/2523;
  • The number of disputes may increase in the EU should the Proposal for a Council Directive on transfer pricing be adopted given it sets the threshold for control at a 25% shareholding, while the OECD Transfer Pricing Guidelines apply a 50% shareholding threshold to determine whether the control criterion is met. This 25% threshold would dramatically increase the transfer pricing compliance burden of companies operating in the EU and as a consequence broaden the scope of transactions potentially subject to dispute between two tax administrations in the EU.

The CFE hopes that these comments will be helpful to the Commission in the review the functioning of the DRM.

[1] Opinion Statement FC 3/2020 on the Directive on Tax Dispute Resolution Mechanisms in the European Union, March 2020, available on the CFE website: https://taxadviserseurope.org/project/cfe-opinion-statement-fc-3-2020-on-the-directive-on-tax-dispute-resolution-mechanisms-in-the-european-union/

[2] Opinion Statement FC 4/2017 on the proposed Directive on Double Taxation Dispute Resolution Mechanisms in the European Union, May 2017, available on the CFE website: http://taxadviserseurope.org/wp-content/uploads/2018/05/CFE-Opinion-Statement-FC.04.2017-on-Dispute-Resolution_0.pdf

[3] CFE and AOTCA Opinion Statement FC 4/2016 on the OECD BEPS Final Recommendations, April 2016, available on the CFE website: http://taxadviserseurope.org/wp-content/uploads/2018/05/CFE-AOTCA-Opinion-Statement-FC-4- 2016-on-the-Final-BEPS-Recommendations.pdf