Code of conduct for the effective implementation of the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises
Date: 2006-06-27
Institutions: Council of the European Union, Representatives of the Governments of the Member States
Subjects: corporation tax, double taxation, profit, restrictive trade practice, tax exemption, tax on profits of self-employment

C 176/8

EN

Official Journal of the European Union

28.7.2006

Code of conduct for the effective implementation of the Convention on the elimination of double
taxation in connection with the adjustment of profits of associated enterprises

(2006/C 176/02)

THE COUNCIL OF THE EUROPEAN UNION AND THE REPRESENTA-
TIVES OF THE GOVERNMENTS OF THE MEMBER STATES, MEETING
WITHIN THE COUNCIL,

HAVING REGARD TO the Convention of 23 July 1990, on the
elimination of double taxation in connection with the adjust-
ment of profits of associated enterprises
(the ‘Arbitration
Convention’),

ACKNOWLEDGING the need both for Member States and
taxpayers to have more detailed rules to implement efficiently
the aforementioned Convention,

NOTING the Commission communication of 23 April 2004 on
the report on the activities of the EU Joint Transfer Pricing
Forum in the field of business taxation including a proposal for
a Code of Conduct,

EMPHASISING that the Code of Conduct is a political commit-
ment and does not affect the Member States' rights and obliga-
tions or the respective spheres of competence of the Member
States and the Community resulting from the Treaty,

ACKNOWLEDGING that the implementation of this Code of
Conduct should not hamper solutions at more global level,

As far as transfer pricing cases are concerned, Member States
are recommended to apply this definition also to the determin-
ation of the three-year period as provided for in Article 25(1)
of the OECD Model Tax Convention on Income and on Capital
and implemented in the double tax treaties between EU
Member States.

2. The starting point of the two-year period (Article 7(1)

of the Arbitration Convention)

(i) For the purpose of Article 7(1) of the Convention, a case
will be regarded as having been submitted according to
Article 6(1) when the taxpayer provides the following:

a) identification (such as name, address, tax identification
number) of the enterprise of the Contracting State that
presents its request and of the other parties to the rele-
vant transactions;

b) details of the relevant facts and circumstances of the
case (including details of the relations between the enter-
prise and the other parties to the relevant transactions);

HEREBY ADOPT THE FOLLOWING CODE OF CONDUCT:

c) identification of the tax periods concerned;

Without prejudice to the respective spheres of compe-
tence of the Member States and the Community, this Code
of Conduct concerns the implementation of the Arbitra-
tion Convention and certain related issues of the mutual
agreement procedure under double tax treaties between
Member States.

1. The starting point of the three-year period (deadline for
submitting the request according to Article 6(1) of the
Arbitration Convention

The date of the ‘first tax assessment notice or equivalent which
results or is likely to result
in double taxation within the
meaning of Article 1, e.g. due to a transfer pricing adjust-
ment’ (1) is considered as the starting point for the three-year
period.

(1) The tax authority Member from Italy considers ‘the date of the first
tax assessment notice or equivalent reflecting a transfer pricing
adjustment which results or is likely to result in double taxation
within the meaning of Article 1’ as the starting point of the three-
year period,
the existing Arbitration
Convention should be limited to those cases where there is a
transfer pricing ‘adjustment’.

since the application of

d) copies of the tax assessment notices, tax audit report or

equivalent leading to the alleged double taxation;

e) details of any appeals and litigation procedures initiated
by the enterprise or the other parties to the relevant
transactions and any court decisions concerning the
case;

f) an explanation by the enterprise of why it thinks that
the principles set out in Article 4 of the Arbitration
Convention have not been observed;

g) an undertaking that

the enterprise shall respond as
completely and quickly as possible to all reasonable and
appropriate requests made by a competent authority
and have documentation at the disposal of the compe-
tent authorities; and

h) any specific additional

information requested by the
competent authority within two months upon receipt of
the taxpayer's request.

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(ii) The two-year period starts on the latest of the following

dates:

a) the date of the tax assessment notice, i.e. a final decision
of the tax administration on the additional income, or
equivalent;

b) the date on which the competent authority receives the
request and the minimum information as stated under
point 2(i).

3. Mutual agreement procedures under the Arbitration

Convention

3.1 General provisions

a) The arm's length principle will be applied, as advocated by
the OECD, without regard to the immediate tax conse-
quences for any particular Contracting State.

b) Cases will be resolved as quickly as possible having regard
to the complexity of the issues in the particular case in
question.

c) Any appropriate means for reaching a mutual agreement as
expeditiously as possible,
including face-to-face meetings,
will be considered; where appropriate, the enterprise will be
invited to make a presentation to its competent authority.

d) Taking into account the provisions of this Code, a mutual
agreement should be reached within two years of the date
on which the case was first submitted to one of the compe-
tent authorities in accordance with point 2(ii) of this Code.

e) The mutual agreement procedure should not impose any
inappropriate or excessive compliance costs on the person
requesting it, or on any other person involved in the case.

3.2 Practical functioning and transparency

a) In order to minimise costs and delays caused by translation,
the mutual agreement procedure, in particular the exchange
of position papers, should be conducted in a common
working language, or in a manner having the same effect, if
the competent authorities can reach agreement on a bilat-
eral basis.

b) The enterprise requesting the mutual agreement procedure
will be kept informed by the competent authority to which
it made the request of all significant developments that
affect it during the course of the procedure.

c) The confidentiality of information relating to any person
that is protected under a bilateral tax convention or under
the law of a Contracting State will be ensured.

d) The competent authority will acknowledge receipt of a
taxpayer's request to initiate a mutual agreement procedure
within one month from the receipt of the request and at the
same time inform the competent authorities of the other
Contracting States involved in the case attaching a copy of
the taxpayer's request.

e) If the competent authority believes that the enterprise has
not submitted the minimum information necessary for the
initiation of a mutual agreement procedure as stated under
point 2(i), it will invite the enterprise within two months
upon receipt of the request, to provide it with the specific
additional information it needs.

f) Contracting States undertake that the competent authority
will respond to the enterprise making the request in one of
the following forms:

(i) if the competent authority does not believe that profits
the enterprise are included, or are likely to be
in the profits of an enterprise of another
inform the enterprise of its

of
included,
Contracting State,
doubts and invite it to make any further comments;

it will

(ii) if the request appears to the competent authority to be
well-founded and it can itself arrive at a satisfactory
solution, it will inform the enterprise accordingly and
make as quickly as possible such adjustments or allow
such reliefs as are justified;

(iii) if the request appears to the competent authority to be
well-founded but it is not itself able to arrive at a satis-
factory solution, it will inform the enterprise that it will
endeavour to resolve the case by mutual agreement
with the competent authority of any other Contracting
State concerned.

g) If a competent authority considers a case to be well
founded, it should initiate a mutual agreement procedure by
informing the competent authority of the other Contracting
State of its decision and attach a copy of the information as
specified under point 2(i) of this Code. At the same time it
will inform the person invoking the Arbitration Convention
that it has initiated the mutual agreement procedure. The
competent authority initiating the mutual agreement proce-
dure will also inform — on the basis of information avail-
able to it — the competent authority of
the other
Contracting State and the person making the request
whether the case was presented within the time limits
provided for in Article 6(1) of the Arbitration Convention
and of the starting point for the two-year period of Article
7(1) of the Arbitration Convention.

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Official Journal of the European Union

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3.3 Exchange of position papers

a) Contracting States undertake that when a mutual agreement
procedure has been initiated, the competent authority of the
country in which a tax assessment, i.e. a final decision of
the tax administration on the income, or equivalent has
been made, or is intended to be made, which contains an
adjustment that results, or is likely to result, in double taxa-
tion within the meaning of Article 1 of the Arbitration
Convention, will send a position paper to the competent
authorities of the other Contracting States involved in the
case setting out:

(i) the case made by the person making the request;

(ii) its view of the merits of the case, e.g. why it believes
that double taxation has occurred or is likely to occur;

(iii) how the case might be resolved with a view to the
elimination of double taxation together with a full
explanation of the proposal.

b) The position paper will contain a full

justification of the
assessment or adjustment and will be accompanied by basic
documentation supporting the competent authority's posi-
tion and a list of all other documents used for the adjust-
ment.

c) The position paper will be sent to the competent authorities
of the other Contracting States involved in the case as
quickly as possible taking account of the complexity of the
particular case and no later than four months from the
latest of the following dates:

i) the date of the tax assessment notice, i.e. final decision
of the tax administration on the additional income, or
equivalent;

ii) the date on which the competent authority receives the
request and the minimum information as stated under
point 2(i).

d) Contracting States undertake that, where a competent
authority of a country in which no tax assessment or
equivalent has been made, or is not intended to be made,
which results, or is likely to result, in double taxation within
the meaning of Article 1 of the Arbitration Convention, e.g.
due to a transfer pricing adjustment, receives a position
paper from another competent authority it will respond as
quickly as possible taking account of the complexity of the
particular case and no later than six months after receipt of
the position paper.

e) The response should take one of the following two forms:

(i) if the competent authority believes that double taxation
has occurred, or is likely to occur, and agrees with the

remedy proposed in the position paper, it will inform
the other competent authority accordingly and make
such adjustments or allow such relief as quickly as
possible;

(ii) if the competent authority does not believe that double
taxation has occurred, or is likely to occur, or does not
agree with the remedy proposed in the position paper,
it will send a responding position paper to the other
competent
and
proposing an indicative time scale for dealing with the
case taking into account its complexity. The proposal
will include, whenever appropriate, a date for a face-to-
face meeting, which should take place no later than 18
months from the latest of the following dates:

setting out

authority

reasons

its

aa) the date of the tax assessment notice, i.e. final deci-
sion of the tax administration on the additional
income, or equivalent;

bb) the date on which the competent authority receives
the request and the minimum information as stated
under point 2(i).

f) Contracting States will further undertake any appropriate
steps to speed up all procedures wherever possible. In this
respect, Contracting States should envisage to organise regu-
larly, and at least once a year, face-to-face-meetings between
to discuss pending mutual
their competent authorities
agreement procedures (provided that the number of cases
justifies such regular meetings).

3.4 Double tax treaties between Member States

As far as transfer pricing cases are concerned, Member States
are recommended to apply the provisions of points 1 to 3 also
to mutual agreement procedures initiated in accordance with
Article 25(1) of the OECD Model Convention on Income and
implemented in the Double tax treaties between
on Capital,
Member States.

4. Proceedings during the second phase of the Arbitration

Convention

4.1 List of independent persons

a) Contracting States commit themselves to inform without
any further delay the Secretary General of the Council of
the European Union of the names of the five independent
persons of standing, eligible to become a Member of the
advisory commission as referred to in Article 7(1) of the
Arbitration Convention and inform, under the same condi-
tions, of any alteration of the list.

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b) When transmitting the names of their independent persons
of standing to the Secretary General of the Council of the
European Union, Contracting States will join a curriculum
vitae of those persons, which should, among other things,
describe their
tax and especially transfer pricing
experience.

legal,

c) Contracting States may also indicate on their list those inde-
pendent persons of standing who fulfil the requirements to
be elected as Chairman.

d) The Secretary General of the Council will address every year
a request to Contracting States to confirm the names of
their
independent persons of standing and/or give the
names of their replacements.

e) The aggregate list of all

independent persons of standing

will be published on the Council's web-site.

4.2 Establishment of the advisory commission

a) Unless otherwise agreed between the Contracting States
concerned, the Contracting State that issued the first tax
assessment notice, i.e. final decision of the tax administra-
tion on the additional income, or equivalent which results,
or is likely to result, in double taxation within the meaning
of Article 1 of the Arbitration Convention, takes the initia-
tive for the establishment of the advisory commission and
arranges for its meetings,
in agreement with the other
Contracting State.

b) The advisory commission will normally consist of two inde-
pendent persons of standing in addition to its Chairman and
the representatives of the competent authorities.

initiated the establishment of

c) The advisory commission will be assisted by a Secretariat
for which the facilities will be provided by the Contracting
State that
the advisory
commission unless otherwise agreed by the Contracting
States concerned. For reasons of independence, this Secre-
tariat will function under the supervision of the Chairman
of the advisory commission. Members of the Secretariat will
be bound by the secrecy provisions as stated in Article 9(6)
of the Arbitration Convention.

d) The place where the advisory commission meets and the
place where its opinion is to be delivered may be deter-
the
mined in advance by the competent authorities of
Contracting States concerned.

4.3 Functioning of the advisory commission

a) A case is considered to be referred to the advisory commis-
sion on the date when the Chairman confirms that
its
members have received all relevant documentation and
information as specified under point 4.2 e).

b) The proceedings of

the advisory commission will be
the
conducted in the official
language or languages of
Contracting States involved, unless the competent authori-
ties decide otherwise by mutual agreement,
taking into
account the wishes of the advisory commission.

c) The advisory commission may request from the party from
which a statement or document emanates to arrange for a
translation into the language or languages in which the
proceedings are conducted.

d) Whilst respecting the provisions of Article 10 of the Arbi-
tration Convention, the advisory commission may request
the Contracting States and in particular the Contracting
State that issued the first tax assessment notice,
i.e. final
decision of the tax administration on the additional income,
or equivalent which resulted or may result in double taxa-
tion within the meaning of Article 1, to appear before the
advisory commission.

e) The costs of the advisory commission procedure, which will
be shared equally by the Contracting States concerned, will
be the administrative costs of the advisory commission and
the fees and expenses of
the independent persons of
standing.

f) Unless the competent authorities of the Contracting States

concerned agree otherwise:

i) the reimbursement of the expenses of the independent
persons of standing will be limited to the reimbursement
usual for high ranking civil servants of the Contracting
State which has taken the initiative to establish the advi-
sory commission;

ii) the fees of the independent persons of standing will be
fixed at EUR 1000 per person per meeting day of the
advisory commission, and the Chairman will receive a
10 % higher fee than the other independent persons of
standing.

e) Contracting States will provide the advisory commission
before its first meeting, with all relevant documentation and
information and in particular all documents, reports, cor-
respondence and conclusions used during the mutual agree-
ment procedure.

g) Actual payment of the costs of the advisory commission
procedure will be made by the Contracting State which has
taken the initiative to establish the advisory commission,
unless the competent authorities of the Contracting States
concerned decide otherwise.

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4.4 Opinion of the advisory commission

Contracting States would expect the opinion to contain:

a) the names of the members of the advisory commission;

b) the request; the request contains:

— the names and addresses of the enterprises involved;

— the competent authorities involved;

— a description of

the facts and circumstances of

the

dispute;

— a clear statement of what is claimed;

c) a short summary of the proceedings;

d) the arguments and methods on which the decision in the

opinion is based;

e) the opinion;

f) the place where the opinion is delivered;

g) the date on which the opinion is delivered;

h) the signatures of the members of the advisory commission.

The decision of the competent authorities and the opinion of
the advisory commission will be communicated as follows:

i) Once the decision has been taken, the competent authority
to whom the case was presented will send a copy of the
decision of the competent authorities and the opinion of
the advisory commission to each of
the enterprises
involved.

ii) The competent authorities of the Contracting States can
agree that the decision and the opinion may be published
in full, they can also agree to publish the decision and the
opinion without mentioning the names of the enterprises
involved and with deletion of any further details that might
disclose the identity of the enterprises involved. In both
cases, the enterprises' consent is required and prior to any
publication the enterprises involved must have communi-
cated in writing to the competent authority to whom the

case was presented that they do not have objections to
publication of the decision and the opinion.

iii) The opinion of the advisory commission will be drafted in
three original copies, two to be sent to the competent
authorities of the Contracting States and one to be trans-
mitted to the Commission for archiving. If there is agree-
ment on the publication of the opinion, the latter will be
rendered public in the original language(s) on the website
of the Commission.

5. Suspension of

tax collection during cross border

dispute resolution procedures

Member States are recommended to take all necessary measures
to ensure that the suspension of tax collection during cross-
border dispute resolution procedures under the Arbitration
Convention can be obtained by enterprises engaged in such
procedures, under the same conditions as those engaged in a
domestic appeals/litigation procedure although these measures
may imply legislative changes in some Member States. It would
be appropriate for Member States to extend these measures to
the cross-border dispute resolution procedures under double
tax treaties between Member States.

6. Accession of new EU Member States to the Arbitration

Convention

Member States will endeavour to sign and ratify, accept or
approve the Accession Convention of new EU Member States
to the Arbitration Convention, as soon as possible and in any
event no later than two years after their accession to the EU.

7. Final provisions

In order to ensure the even and effective application of the
Code, Member States are invited to report to the Commission
on its practical functioning every two years. On the basis of
these reports, the Commission intends to report to the Council
and may propose a review of the provisions of the Code.