No C 301/4 Official  Journal  of the European  Communities 21.12.  76 
II 
(Preparatory  Acts) 
COMMISSION 
Proposal  for a Council  Directive  on the elimination  of double  taxation  in connection 
with  the adjustment  of transfers  of profits  between  associated  enterprises  (arbitration 
procedure) 
(Submitted  by the Commission  to the Council  on 29 November  1976) 
THE  COUNCIL  OF THE  EUROPEAN  COMMUNITIES, 
Having  regard  to  the  Treaty  establishing  the 
European  Economic  Community,  and  in particular 
Article  100  thereof, 
Having  regard  to the proposal  of the Commission, 
Having  regard  to the opinion  of the  Economic  and 
Social  Committee, 
Having  regard  to the  opinion  of the  European 
Parliament, 
Whereas,  when  a Member  State  increases  the taxable 
profits  of an enterprise  on the ground  that  they  have 
been  reduced  as a result  of conditions  agreed  with  an 
associated  enterprise  in another  Member  State,  which 
differ  from  those  that  would  have  been  agreed 
between  independent  enterprises,  such  an increase 
may give  rise  to double  taxation  within  the group  of 
enterprises  of which  the first  enterprise  forms  part; 
Whereas  this  double  taxation  is likely  to cause 
distortions  in the  conditions  of competition  and  in 
capital  movements  and  therefore  to affect  the 
operation  of the common  market; 
Whereas,  for this  reason,  it is necessary  to ensure  the 
elimination  of the  double  taxation  which  occurs  in 
these  circumstances; 
Whereas  such  elimination  may  be achieved  through  a 
procedure  under  which,  in the first  place,  the case  is submitted  to the tax authorities  of the two  Member 
States  concerned  with  a view  to their  settling  the 
question  by  mutual  agreement;  whereas,  in the 
absence  of such  agreement,  the  matter  in dispute 
should  be submitted  to a commission,  consisting  both 
of representatives  of the  tax  authorities  concerned 
and of independent  persons  of standing,  whose 
decision  both  the tax authorities  and  the enterprises 
concerned  accept  from  the outset, 
HAS  ADOPTED  THE  PRESENT  DIRECTIVE: 
Article  1 
1. Where: 
— the  amount  of the taxable  profits  of an enterprise 
is increased  or is likely  to be increased  by the tax 
authority  of a Member  State  on the ground  that 
the profits  in question  have  been  reduced  as a 
result  of conditions  agreed  for  transactions 
carried  out  with  an associated  enterprise  which 
differ  from  those  which  would  have  been  agreed 
between  independent  enterprises,  and 
— double  taxation  results  or is likely  to result  from 
this increase, 
each  of  the  associated  enterprises  may, 
notwithstanding  the remedies  provided  by the national 
laws  of the Member  States  concerned,  present  its case 
to the tax authority  entrusted  with  the taxation  of its 
profits  derived  from  the  said  transactions,  with  a 
view  to eliminating  the double  taxation. 
21.12.  76 Official  Journal  of the European  Communities No C 301/5 
The case  must  be presented  before  the expiry  of three 
years  from  the  delivery  of  the  first  written 
notification  of the increase. 
The tax  authority  to which  the  case  has  been 
presented  shall  inform  the  other  tax  authority 
concerned  thereof  without  delay. 
2. For  the purposes  of this  Directive: 
(a) a transaction  carried  out by an enterprise  shall  be 
considered  to be carried  out  with  an associated 
enterprise  if it is carried  out  either  directly  with 
an enterprise,  resident  in another  Member  State, 
which  is associated  with  the  first  enterprise  or 
through  a permanent  establishment,  situated  in 
another  Member  State,  of  an  enterprise 
associated  with  the first  enterprise; 
(b) enterprises  shall  be considered  to be associated: 
— where  one  of the  enterprises  participates 
directly  or indirectly  in the  management, 
control  or capital  of the other  enterprise,  or 
— where  the same  persons  participate  directly  or 
indirectly  in the  management,  control  or 
capital  of the enterprises; 
(c) the  term  'double  taxation'  means  the situation  in 
which  an increase  of taxable  profits  made  in one 
Member  State  as referred  to in paragraph  1 does 
not give  rise  in the  other  Member  State  to a 
corresponding  adjustment  either  of the  taxable 
profits  of the  associated  enterprise  or of the 
amount  of  tax  payable  by  the  associated 
enterprise  in respect  of those  profits. 
3. Paragraph  1 shall  also  apply,  mutatis  mutandis, 
where  one  or both  of the associated  enterprises  or the 
permanent  establishment  have  made  losses  instead  of 
profits. 
Article  2 
If neither  of the tax authorities  is able  on its own  to 
arrive  at a satisfactory  solution  of the  problem 
presented  to it, the two  authorities  shall  endeavour  to 
reach  mutual  agreement  with  a view  to avoiding 
double  taxation. 
Article  3 
1. If,  in applying  Article  2, the  tax  authorities 
concerned  fail  to reach  an agreement  that  eliminates 
the double  taxation,  they  shall  present  the case  to a 
commission,  whose  decision  they  shall  agree  from  the 
outset  to accept.  The  case  shall  be submitted  to this 
commission  within  two  years  from  the  first  of the 
dates  on which  the case  was  presented  to one  of the 
tax authorities  in accordance  with  Article  1 (1). 2. Unless  the tax  authorities  concerned  otherwise 
agree,  paragraph  1 shall  not  apply  unless  the 
associated  enterprises  also  agree  from  the outset  to 
accept  the decision  of the commission. 
Where  the  domestic  legislation  of a Member  State 
does  not permit  its tax authority  to settle  cases  by a 
mutual  agreement  procedure  where  such  settlement 
would  be contrary  to a decision  of a judicial  body, 
paragraph  1 shall  not  apply  unless  the  associated 
enterprises  have  allowed  the time  provided  for appeal 
to expire  or have  withdrawn  any  appeal  already  made. 
For the purposes  of the preceding  sentence,  'appeal' 
means  an appeal  to the  first  appeal  body  in the 
judicial  process  either  against  the decision  concerning 
the increase  or against  the  decision  concerning 
the taxation  of the  associated  enterprise  to which  a 
corresponding  adjustment  might  be made. 
3. The  tax  authorities  may,  by mutual  agreement 
and with  the agreement  of the associated  enterprises 
concerned,  waive  the provisions  of paragraph  1. 
4. In  so far  as the  provisions  of the  preceding 
paragraphs  are not applied,  the rights  of each  of the 
associated  enterprises,  as laid  down  in Article  2 or in 
taxation  agreements,  shall  remain  unaffected. 
Article  4 
1. The  commission  referred  to in Article  3 (1) shall 
consist  of: 
— an equal  number  of representatives  from  each  of 
the tax authorities  concerned, 
— an uneven  number  of independent  persons  of 
standing,  who  shall  be members  of the  tax 
authorities  concerned  nor  be  engaged  in the 
performance  of tasks  or duties  for or on behalf  of 
those  authorities. 
The commission  shall  decide  by simple  majority. 
Subject  to these  provisions,  the composition  of the 
commission  shall  be  determined  by  agreement 
between  the  tax  authorities  of the  Member  States 
concerned. 
2. The  independent  persons  of standing  shall  be 
appointed  by mutual  agreement  or, in the absence  of 
agreement,  by  the  drawing  of lots  by  the  tax 
authorities  of the  Member  States  concerned.  Such 
persons  may  be appointed  from  the list of persons  of 
standing  referred  to in paragraph  3. Any  appointment 
made  by the drawing  of lots  shall  be made  from  such 
list. 
Where  lots  are  drawn,  each  of the  tax  authorities 
concerned  may  refuse  to accept  the appointment  of 
No C 301/6 Official  Journal  of the European  Communities 21.12.  76 
any particular  independent  person  of standing  in any 
circumstance  agreed  in advance  between  the  tax 
authorities  concerned  or in one  of the  following 
situations,  where: 
— such  person  is, or has  been,  associated  within  the 
meaning  of Article  1 (1) with  one  or both  of the 
associated  enterprises  or has  been  their  employee 
or adviser,  or 
— such  person  does  not offer  a sufficient  guarantee 
of objectivity  for the  settlement  of the  case  or 
cases  to be decided. 
3. The  list  of independent  persons  of standing 
shall  contain  all  the  persons  nominated  by  the 
Member  States.  For  this  purpose  each  Member  State 
shall,  after  consultation  with  professional  bodies, 
nominate  five  persons  and  shall  inform  the 
Commission  of the  European  Communities  thereof 
within  the  period  specified  in Article  9 (1).  Such 
persons  shall  be nationals  of a Member  State.  The 
Commission  shall  communicate  the  list  of the 
independent  persons  of standing  to each  Member 
State. 
The Member  States  shall  without  delay  inform  the 
Commission  of any  alterations  to be made  to the said 
list. 
4. In  their  capacity  as members  of the commission, 
the independent  persons  of standing  shall  be subject 
to the  obligation  of professional  secrecy  under  the 
conditions  laid  down  by the domestic  legislation  of 
each  of the Member  States  concerned. 
5. The  commission  shall  appoint  its chairman 
from  among  the  independent  persons  of standing 
who are members  of it. 
6. The  expenses  of  the  proceedings  of  the 
commission,  save  for  the  expenses  incurred  by the 
associated  enterprises,  shall  be  shared  equally 
between  the two  Member  States  concerned. 
7. Without  prejudice  to paragraphs  1 to 6, the tax 
authorities  may  agree  upon  further  rules  of procedure 
in their  bilateral  relations. 
8. Member  States  shall  take  all necessary  steps, 
within  sufficient  time,  to ensure  that  the  case  is 
presented  to the  commission  within  the  period 
specified  in Article  3 (1),  and  that  the  commission 
meets  thereafter  without  delay. 
Article  5 
1. For  the purpose  of the procedures  referred  to in 
Articles  2 and  3, each  of the  associated  enterprises 
may provide  all information  or present  all evidence 
and all documents  which  may  be of use in reaching  a 
decision.  The  enterprises  and  the tax authorities  shall comply  with  any  request  by  the  commission  to 
provide  such  information  or to present  such  evidence 
and documents. 
2. Each  of the  associated  enterprises  may,  at its 
request,  appear  or  be  represented  before  the 
commission. 
If the commission  so requests,  each  of the associated 
enterprises  shall  appear  or be represented  before  it. 
Article  6 
The decision  of the  commission  shall  relate  to the 
amount  of double  taxation  which  remains  unrelieved. 
The decision  may  relate  to the increase  referred  to in 
the first  subparagraph  of Article  1 (1),  to the 
corresponding  adjustment  referred  to in Article  1 (2) 
(c), or both  to the increase  and  to the adjustment. 
The decision,  which  shall  be given  in writing,  shall 
eliminate  the said  double  taxation. 
The tax  authorities  concerned  may  agree  to publish 
the decision. 
Article  7 
1. Without  prejudice  to the  second  subparagraph 
of Article  3 (2),  the fact  that  a decision  made  in one 
Member  State  concerning  the increase  referred  to in 
the first  subparagraph  of Article  1, or a decision 
made  in another  Member  State  concerning  the 
taxation  of the  associated  enterprise,  to which  a 
corresponding  adjustment  within  the  meaning  of 
Article  1 (2) (c) might  be made,  has  become  final, 
shall  not prevent  the application  of the procedures  set 
out in Articles  2 and  3. 
2. Where,  in one  or both  of the  Member  States 
concerned,  the decisions  regarding  the taxation  giving 
rise to the procedures  referred  to in Articles  2 and  3 
have  been  altered  after  the procedure  referred  to in 
Article  2 has been  concluded  or after  the commission 
has given  its decision,  the  result  of that  procedure 
and that  decision  of the commission  shall  be revised 
to take  account  of such  alteration  in the taxation. 
Article  8 
1. The  foregoing  provisions  shall  also  apply 
mutatis  mutandis  to the allocation  of the total  profits 
of an enterprise  between  the  headquarters  of the 
enterprise  situated  in one  Member  State  and  one  or 
more  of its permanent  establishments  situated  in one 
or more  other  Member  States,  and  also  to the 
21.12.76 Official  Journal  of the European  Communities No C 301/7 
relations  between  different  permanent  establishments 
of an  enterprise  which  are  situated  in different 
Member  States. 
2. Where  in a Member  State  in which  the 
headquarters  of an enterprise  is situated: 
— the  profits  attached  to a permanent  establishment 
of such  enterprise,  situated  in another  Member 
State,  are taxed, 
and where 
— in taxing  such  profits  a relief  is granted  which 
only  partly  takes  account  of the  amount  of the 
taxable  profits  of the  permanent  establishment  in 
the other  Member  State  or of the  amount  of tax 
payable  in that  other  Member  State  on the  same 
profits, 
the relief  given  consequent  upon  the  increase  in the 
amount  of the  taxable  profits  of the  permanent establishment  may  be  regarded  and  the  corre-
sponding  adjustment  referred  to in Article  1 (2) (c). 
Article  9 
1. Member  States  shall  bring  into  force  the 
necessary  laws,  regulations  and  administrative 
provisions  to comply  with  the  provisions  of the 
Directive  not later  than  1 January  of the second  year 
following  the  year  of  its  adoption,  and  shall 
immediately  communicate  them  to the Commission. 
2. Member  States  shall  ensure  that  the texts  of any 
further  main  provisions  of national  law  adopted  in 
the field  covered  by this  Directive  are communicated 
to the Commission. 
Article  10 
This  Directive  is addressed  to the Member  States.