WRITTEN QUESTION E-3449/00

by François Bayrou (PPE-DE) to the Commission

(7 November 2000)

Subject: Double taxation

The mobility of European citizens, promoted by the policy pursued by the European Commission, is being impeded by the persistent problems of double taxation.

Despite the large number of taxation agreements concluded between the various countries concerned, the instances of a refusal to apply the gentleman's agreement procedure introduced by such taxation agreements is becoming increasingly frequent. Apparently, a taxation agreement of this nature exists between France and Luxembourg, but it is rarely implemented by the two national authorities concerned. Since there is no arbitration body able to adjudicate on tax disputes, such disputes can drag on for decades.

What does the European Commission intend to do to ensure that the tax authorities apply the agreements currently in force which were drawn up in the interests of European citizens and in order to encourage their mobility?

Answer given by Mr Bolkestein on behalf of the Commission

(11 December 2000)

The Commission fully agrees with the Honourable Member that double taxation can constitute an obstacle to the mobility of European citizens. The issue of double taxation is recognised by the EC Treaty. Article 293 (ex 220) of the EC Treaty stipulates that Member States shall, so far as is necessary, enter into negotiations with each other with a view to securing for the benefits of their nationals the abolition of double taxation within the Community. In accordance with Article 293, Member States have concluded bilateral tax conventions with each other and there is at present a near complete network of tax conventions within the Community.

Bilateral tax conventions generally provide for a mutual agreement procedure for resolving difficulties arising out of the application of the convention. In accordance with Article 25 of the Organisation for economic cooperation and development (OECD) Model Tax Convention on Income and on Capital, such mutual agreement procedures usually provide that the competent authorities shall endeavour by mutual agreement to resolve the situation of taxpayers subjected to taxation not in accordance with the provisions of the convention. In addition, they invite and authorise the competent authorities to resolve by mutual agreement problems relating to the interpretation or application of the convention and, furthermore, to consult together for the elimination of double taxation in cases not provided for in the convention. Although the competent authorities are usually able to resolve disputes by mutual agreement within a reasonable period of time, there are examples of mutual agreement procedures which continue for a long period of time or do not result in a satisfactory outcome. The Commission believes that binding arbitration can play an important role in resolving such disputes and in speeding up proceedings and that a provision providing for such binding arbitration would therefore be a useful addition to Member States' bilateral tax treaties.

It may be noted that there already exists an instrument which provides for arbitration for tax disputes in the area of transfer pricing: the Arbitration Convention(1). The objective of this multilateral convention, which entered into force on 1 January 1995, is to establish a procedure to resolve cases of double taxation between enterprises of different Member States resulting from an upwards adjustment of profits of an enterprise in one Member State which is not matched by a corresponding downward adjustment of the profits of an associated enterprise in another Member State. Bilateral tax conventions generally include provisions for corresponding adjustments to prevent problems of double taxation but do not impose any binding obligation in this regard. The Arbitration Convention includes provision for the appointment of an advisory committee to give an opinion on the elimination of the double taxation if the two Member States involved cannot reach agreement on how this should be achieved within two years of the submission of a complaint by the firms involved. The opinion of the advisory committee is binding on the Member States, unless they reach agreement on a decision which deviates from the opinion. The decision which will eliminate the double taxation has to be taken within six months of the opinion of the advisory committee. The Commission is currently examining the functioning of the Arbitration Convention in the context of the study on company taxation which will be presented in 2001.

An interesting development worth mentioning is the new double taxation convention between Austria and Germany which has been signed but not yet ratified. This convention provides that when the competent authorities are not able to resolve difficulties or doubts concerning the interpretation or application of the convention within a period of two years; they shall, at the request of the taxpayer, bring the case before the Court of Justice in accordance with Article 239 (ex 182) of the EC Treaty. The Commission has noted this development with interest and encourages other Member States to consider taking similar steps.

(1) Convention 90/463/EEC of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits of associated companies (OJ L 225, 20.8.1990).