Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee on the work of the EU Joint Transfer Pricing Forum in the period March 2007 to March 2009 and a related proposal for a revised Code of Conduct for the effective implementation of the Arbitration Convention (90/436/EEC of 23 July 1990) {SEC(2009) 1168} {SEC(2009) 1169}
Date: 2009-09-14
Institutions: European Commission
Subjects: EU body, code of conduct, domestic market, tax system, transfer pricing

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.9.2009 
COM(2009) 472 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

on the work of the EU Joint Transfer Pricing Forum in the period March 2007 to March 
2009 and a related proposal for a revised Code of Conduct for the effective 
implementation of the Arbitration Convention (90/436/EEC of 23 July 1990) 

{SEC(2009) 1168} 
{SEC(2009) 1169} 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

on the work of the EU Joint Transfer Pricing Forum in the period March 2007 to March 
2009 and a related proposal for a revised Code of Conduct for the effective 
implementation of the Arbitration Convention (90/436/EEC of 23 July 1990) 

TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

3. 

4. 

5. 

Aim and context ........................................................................................................... 3 

Activities of the EU Joint Transfer Pricing Forum from March 2007 to March 2009 4 

JTPF conclusions on penalties and transfer pricing..................................................... 4 

JTPF conclusions on the interpretation of some provisions of the Arbitration 
Convention ................................................................................................................... 6 

The Arbitration Convention and related issues............................................................ 8 

Current and future Work Programme of the JTPF....................................................... 9 

Commission conclusions............................................................................................ 10 

ANNEX.................................................................................................................................... 12 

DRAFT REVISED 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 
ENTREPRISES.......................................................................................................... 12 

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1. 

1. 

2. 

3. 

4. 

5. 

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2 
3 

4 
5 
6 
7 

AIM AND CONTEXT 

Transfer  prices  are  the  prices  at  which  an  enterprise  transfers  physical  goods  and 
intangible  property  or  provides  services  to  associated  enterprises.  A  fundamental 
principle, for tax purposes, is that the conditions attached to such transfers should not 
differ  from  those  which  would  be  established  between  enterprises  that  are  not 
associated.  This  principle  is  referred  to  as  the  ‘arm’s  length’  principle  and  is 
internationally recognised, although not universally applied. It is enshrined in Article 
9  of  the  OECD  Model  Tax  Convention.  The  OECD  has  issued  guidelines1  for  the 
application of the arm’s length principle to evaluate the transfer pricing of associated 
enterprises. 

Within  the  European  Union  (EU),  the  arm’s  length  principle  and  related  OECD 
guidelines  are  accepted  and  applied  by  all  Member  States.  However,  the 
interpretation  and  application  of  the  OECD  guidelines  can  vary  between  countries. 
Differing interpretations can result in uncertainty for taxpayers and could also affect 
the proper functioning of the internal market in that the same profits could be taxed 
twice — double taxation. 

The  quick  and  effective  elimination  of  any  double  taxation  arising  from  a  transfer 
pricing  adjustment  or  from  differing  interpretations  of  the  OECD  guidelines  is  a 
major issue within the internal market. Consequently, a multilateral convention ‘on 
the  elimination  of  double  taxation  in  connection  with  the  adjustment  of  profits  of 
associated enterprises’ (the ‘Arbitration Convention’ or ‘AC2’) was adopted in 1990 
by all EU Member States. 

The  EU  Joint  Transfer  Pricing  Forum  (JTPF),  an  expert  group,  was  set  up  by  the 
Commission  in  October  2002,  following  a  Commission  Communication  issued  in 
20013. The JTPF’s mandate is to find pragmatic solutions to problems arising from 
the  application  of  the  arm’s  length  principle  and  to  ensure  the  elimination  of  any 
double taxation that may arise. 

The Commission has reported  on  three occasions on the work of the JTPF in three 
Communications.  The  first  Communication4  presented  a  Code  of  Conduct5  for  the 
Arbitration  Convention,  which  sought  to  ensure  that  the  AC  would  operate  more 
efficiently.  The  second  Communication6  presented  a  Code  of  Conduct7  concerning 
documentation  requirements  for  transfer  pricing  within  the  EU  —  the  EU  Transfer 
Pricing Documentation (EU TPD). The EU TPD Code of Conduct sought to ensure a 
consistent  approach  by  setting  out  the  type  of  documentation  that  Member  States 

‘Transfer pricing guidelines for multinational enterprises and tax administrations’. 
OJ L/1990/225 of 20/08/1990 — Convention 90/436/EEC. 
Communication from the Commission to the Council, the European Parliament and the Economic and 
Social  Committee:  ‘Towards  an  internal  market  without  obstacles  —  A  strategy  for  providing 
companies with a consolidated corporate tax base for their EU-wide activities’ COM(2001) 582 final, 
23.10.2001. 
OJ C/2004/122 of 30/04/2004, p. 45. 
OJ C/2006/176 of 28/07/2006, p. 8. 
OJ C/2006/49 of 28/02/2006, p. 23. 
OJ C/2006/176 of 28/07/2006, p. 1. 

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6. 

2. 

7. 

should  request  and  accept  for  the  purposes  of  their  own  transfer  pricing  rules.  The 
third Communication8 presented guidelines for Advance Pricing Agreements (APAs) 
within the EU. APAs are considered to be an efficient tool for dispute avoidance as 
they provide advance certainty concerning the transfer pricing methodology. 

This fourth Communication reports on the work of the JTPF over the last two years 
and presents in annex a revised Code of Conduct for the Arbitration Convention. As 
a result of a monitoring exercise on the application of the existing Code of Conduct, 
it was recognised that the three-year target for resolution specified within the Code of 
Conduct was difficult to achieve and further work was needed to clarify the process 
to  facilitate  resolution  within  the  three-year  time  frame.  Consequently,  some 
revisions are proposed to provide the necessary clarification on specific provisions of 
the Arbitration Convention. 

ACTIVITIES OF THE EU JOINT TRANSFER PRICING FORUM FROM MARCH 2007 TO 
MARCH 2009 

During  this  period  the  JTPF  adopted  two  reports:  firstly,  one  on  penalties  and 
transfer  pricing,  unanimously  adopted,  and,  secondly,  one  on  the  interpretation  of 
some  provisions  of  the  Arbitration  Convention  with  several  reservations  regarding 
thin  capitalisation.  These  reports  are  being  issued  as  staff  working  documents  with 
this Communication. The JTPF recommendations, included in the JTPF report on the 
interpretation  of  some  provisions  of  the  AC,  have  been  incorporated  in  the  revised 
Code of Conduct for the AC, in the Annex to this Communication. 

2.1. 

JTPF conclusions on penalties and transfer pricing 

8. 

9. 

10. 

The  issue  of  penalties  was  recognised  as  an  important  concern  for  multinational 
enterprises  in  the  first  JTPF  work  programme.  This  topic  was  addressed  on  two 
occasions by the JTPF: when a Forum member, Professor Maisto, conducted a study 
to better assess how penalties were addressed by EU Member States, and when the 
JTPF discussed transfer pricing documentation requirements. 

This  work  confirmed  that  EU  Member  States  have  rules  which  aim  at  enforcing 
taxpayers' compliance with national tax legislation. These rules can vary widely from 
one Member State to another. In the area of transfer pricing, penalties are generally 
applied  in  the  event  of  non-compliance  with  transfer  pricing  documentation 
requirements, uncooperative behaviour by a taxpayer and understatement of profits. 

Penalties can take the form of either monetary deterrents, for example a surcharge or 
additional  tax  imposed  as  a  consequence  of  underpayment  of  tax  in  addition  to  the 
amount of underpayment, or other measures, for example, a reversal of the burden of 
proof where a taxpayer has not acted in good faith. 

11. 

Penalties must always be distinguished from interest on late payment of tax, which is 
imposed to recompense the time value of money. 

8 

COM(2007) 71 final of 28/2/2007. 

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12. 

As regards penalties linked to transfer pricing documentation, the JTPF felt the issue 
was  already  addressed  in  the  Code  of  Conduct  on  transfer  pricing  documentation, 
where the following recommendations are made: 

‘Member States should not impose a documentation-related penalty where taxpayers 
comply  in  good  faith,  in  a  reasonable  manner  and  within  a  reasonable  time  with 
standardised  and  consistent  documentation  as  described  in  the  Annex  or  with  a 
Member  State’s  domestic  documentation 
their 
documentation properly to determine their arm’s length transfer prices. 

requirements,  and  apply 

… 

Taxpayers  avoid  cooperation-related  penalties  where  they  have  agreed  to  adopt  the 
EU  TPD  approach  and  provide,  upon  specific  request  or  during  a  tax  audit,  in  a 
reasonable  manner  and  within  a  reasonable  time,  additional  information  and 
documents going beyond the EU TPD referred to in paragraph 18.’ 

13. 

Considering that penalty regimes are a matter of domestic law and recognising that, 
generally,  EU  Member  States  do  not  apply  separate  penalty  regimes  to  transfer 
pricing  adjustments,  the  JTPF  observed  that  the  interaction  of  transfer  pricing  and 
penalties  was  a  matter  to  be  addressed  by  existing  EU  Member  States  penalty 
regimes. 

14. 

However, the JTPF agreed on three further conclusions: 

(a) 

(b) 

On  penalties  related  to  transfer  pricing  adjustments,  the  JTPF  recognised  that 
transfer  pricing  is  not  an  exact  science;  there  will  usually  be  a  range  of 
possibilities for arriving at the arm’s length price. Therefore, it is inappropriate 
for tax administrations to impose a penalty automatically, without considering 
the  facts  of  the  case,  merely  due  to  what  turns  out  to  be  incorrect  transfer 
pricing. 

On the cancellation or mitigation of penalties where the case has been subject 
to a Mutual Agreement Procedure (MAP) under a double tax convention or a 
procedure under the Arbitration Convention: in practice, penalties are generally 
reduced or waived following the downward revision of a settlement originally 
made  between  the  taxpayer  and  the  tax  administration  or  following  an 
agreement  between  the  tax  administrations  involved  in  the  MAP  or  AC 
procedure  to  reduce  the  transfer  pricing  adjustment.  The  JTPF  considered  it 
appropriate  to  reiterate  that  the  penalty  should  be  reduced  commensurately 
with a downward revision. This would bring the penalty into line with the final, 
agreed  transfer  pricing.  This,  however,  would  not  necessarily  be  the  case  for 
criminal  penalties  or  penalties  considered  as  serious  under  the  Arbitration 
Convention. 

(c) 

Finally, the JTPF concluded that as regards the Arbitration Convention and the 
possibility to deny access to it in the case of a serious penalty, the topic should 
be addressed in the report on the Arbitration Convention (see under point 2.2, 
paragraph 17). 

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2.2. 

15. 

16. 

17. 

18. 

19. 

JTPF  conclusions  on  the  interpretation  of  some  provisions  of  the  Arbitration 
Convention 

The  objective  of  the  first  Code  of  Conduct  was  to  ensure  a  more  effective  and 
uniform application by all EU Member States of the Arbitration Convention and to 
establish  procedures  to  enable  smooth  and  timely  progression  through  the  various 
stages  of  the  Arbitration  Convention.  The  Code  of  Conduct  also  contained  a 
recommendation  to  EU  Member  States  on  the  suspension  of  tax  collection  during 
cross-border dispute resolution procedures. 

Based  on  the  practical  experience  gained  since  this  first  Code  of  Conduct  was 
adopted in 2004, the JTPF members were of the opinion that a common view of the 
interpretation of some provisions could usefully be addressed. The topics specifically 
identified were: serious penalties, the scope of the AC (triangular transfer pricing and 
thin  capitalisation  cases),  interest  charged/credited  by  tax  administrations  when  a 
case is dealt with under the AC, the functioning of the AC (rules on the deadline for 
setting  up  the  advisory  commission,  criteria  for  establishing  the  independence  of 
independent persons of standing), the date from which a case is admissible under the 
AC, and the interaction between the AC and domestic litigation. 

The  topic  of  serious  penalties  (Article  8(1)  of  the  AC),  whereby  access  to  the  AC 
may be denied where the taxpayer is liable to a serious penalty, was also discussed 
by the JTPF. This article is supplemented by unilateral declarations made by Member 
States  to  explain  what  they  consider  to  be  a  serious  penalty.  Some  Member  States 
now  acknowledge  that  their  unilateral  declarations  do  not  describe  penalties  that 
should be considered serious. Moreover, since 1995, tax administrations have gained 
more experience with transfer pricing disputes and in practice access to the AC has 
been  denied  in  very  few  cases.  Consequently,  the  JTPF  concluded  that  serious 
penalties should only be applied in exceptional cases like fraud and invited Member 
States to better reflect this conclusion in their unilateral declarations. 

The  JTPF  examined  to  what  extent  ‘thin  capitalisation’  cases  are  covered  by  the 
scope  of  the  AC.  It  was  unanimously  recognised  that  adjustments  to  the  rate  of 
interest  on  loans  between  associated  enterprises  fall  within  the  scope.  However, 
differing  views  were  expressed  by  the  tax  administration  members  on  the  specific 
issue  of  whether  adjustments  to  the  amount  of  a  loan  are  also  covered,  and  this  in 
turn leads to wider issues concerning general borrowing capacity. This is particularly 
sensitive  if  the  adjustment  of  profits  related  to  thin  capitalisation  are  deemed  to  be 
derived  from  the  application  of  EU  Member  States’  anti-abuse  rules  (AAR)  rather 
than  from  their  general  arm’s  length  rules,  as  evidenced  by  the  number  of 
reservations, referring to AAR, expressed on the JTPF recommendation. 

A large majority of Member States concluded that the AC covers thin capitalisation 
cases as it makes clear reference to ‘conditions … made or imposed between the two 
enterprises  in  their  commercial  or  financial  relations’.  Consequently,  adjustments 
related to conditions made or imposed in relation to interest rates, the amount of the 
loan  and  borrowing  capacity  are  all  covered  by  the  AC.  A  significant  minority  did 
not agree with this conclusion, reasoning that AAR and the application of the arm’s 
length principle to a financial transaction are different concepts and that adjustments 
related to the amount of a loan and borrowing capacity were therefore not within the 
scope of the AC. 

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20. 

21. 

22. 

23. 

24. 

25. 

The  Commission’s  opinion,  based  on  the  text  of  the  AC,  is  that  Article  4(1)  is 
sufficiently  broad  to  cover  all  aspects  of  thin  capitalisation  rules,  whether  they 
concern  the  interest  rate  or  the  amount  of  the  loan,  as  these  aspects  ultimately  all 
affect the profits of the associated enterprises. 

It  may  be  noted  that  the  European  Court  of  Justice  (ECJ),  in  applying  the  arm’s 
length principle, also refers to these different aspects of thin capitalisation rules9. On 
the specific aspect of adjustments derived in whole or in part from the application of 
domestic  anti-abuse  rules  (AAR)  in  cross-border  situations  only,  the  Commission 
concludes,  based  on  recent  ECJ  case  law  and  as  already  partly  developed  in  its 
Communication on anti-abuse measures10, that such adjustments should be restricted 
to transactions which, in whole or in part, represent a purely artificial arrangement. 
In addition, the rule should only aim to set the right price of the transaction. 

Since  the  AC  addresses  adjustments  related  to  the  application  of  the  arm's  length 
principle, there should not be any reason to prevent the application of the AC in the 
above  circumstances.  Therefore  the  Commission  encourages  all  tax  administrations 
to accept this interpretation in order to give the widest possible access to the benefits 
of the AC process. 

The  Forum  reviewed  the  application  of  the  existing  Arbitration  Convention  and 
related Code of Conduct to double taxation cases that resulted from the involvement 
of more than two European parties to a transaction. In examining the issue, an agreed 
definition of the type of case involved was required and the following was agreed: a 
triangular  case  is  a  case  where  two  Member  States  in  a  MAP  cannot  fully  resolve 
any  double  taxation  arising  in  a  transfer  pricing  case  when  applying  the  arm’s 
length  principle  because  an  associated  enterprise  —  as  defined  in  the  Arbitration 
Convention — situated in a third Member State and identified by both EU competent 
authorities  (evidence  based  on  a  comparability  analysis  including  a  functional 
analysis  and  other  related  factual  elements)  had  a  significant  influence  in 
contributing  to  a  non-arm’s  length  result  in  a  chain  of  relevant  transactions  or 
commercial/financial  relations  and  is  recognised  as  such  by  the  taxpayer  suffering 
the double taxation and requesting the MAP. 

The JTPF agreed that transfer pricing disputes in triangular cases involving only EU 
competent authorities were covered by the scope of the Arbitration Convention. The 
Forum  also  examined  what  practical  guidance  could  be  given  to  facilitate  the 
resolution of such cases. 

Considering  the  recommendation  in  the  first  Code  of  Conduct  to  suspend  tax 
collection  during  the  Mutual  Agreement  Procedure,  the  JTPF  examined  the 
possibility to suspend interest charges during the procedure. All tax administrations 
could  agree  that  a  taxpayer  should  not  be  adversely  affected  by  the  existence  of 
different  approaches  to  interest  charges  and  refunds  during  the  time  it  takes  to 
complete  the  MAP  process.  The  JTPF  therefore  recommended  that  Member  States 
should apply one of the following approaches: 1) tax to be released for collection and 
repaid without attracting any interest; 2) tax to be released for collection and repaid 

9 
10 

See in particular para. 81 of Thin Cap GL case C-524/04 of 13/03/2007. 
OJ C/2008/106 of 26/04/2008, p.13. 

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with  interest;  3)  each  case  to  be  dealt  with  on  its  merits  in  terms  of  charging  or 
repaying interest (possibly during the MAP process). The competent authorities, by 
discussing  and  adopting  the  most  appropriate  approach  based  on  the  three  options, 
have  an  opportunity  to  prevent  the  taxpayer  being  adversely  affected  by  differing 
approaches  to  interest  charges  during  the  MAP  negotiations.  The  Commission 
encourages the adoption of the above process. 

The  Arbitration  Convention  was  designed  to  facilitate  the  resolution  of  disputes 
within a three-year timeframe. From the statistical data11 it was obvious that it takes 
longer  than  three  years  for  too  many  cases  to  be  resolved.  The  absence  of  a  clear 
deadline  for  setting  up  the  advisory  commission  in  Article  7(1)  was  identified  as  a 
major  drawback  of  the  Arbitration Convention  process.  To  overcome  this  problem, 
the JTPF has agreed that an advisory commission should be set up no later than six 
months following expiry of the initial stage of the AC process as defined in Article 7 
of the AC. 

A  further  difficulty  that  leads  to  delays  is  reaching  agreement  on  whether  an 
independent  person  of  standing,  designated  to  become  a  member  of  an  advisory 
commission, is indeed independent. The JTPF agreed that the use of a standardised 
declaration  would  be  beneficial.  The  notice  will  require  independent  persons  of 
standing  selected  for  the  panel  to  sign  a  declaration  accepting  nomination  and  a 
statement of independence for the particular case under consideration. Furthermore, 
the  JTPF  also  agreed  that  independent  persons  of  standing  do  not  have  to  be 
nationals  of  or  resident  in  the  nominating  state,  but  do  have  to  be  nationals  of  a 
Contracting State to the AC and resident within the territory to which the AC applies, 
as defined in Article 16 of the AC. 

The JTPF also clarified the date from which a case is admissible under the AC, once 
a country joins the AC. The JTPF concluded that a case is covered by the AC when 
the request is presented within the time period referred to in Article 6 of the AC but 
after the date of entry into force of accession by new Member States to the AC, even 
if the adjustment applies to earlier fiscal years. 

The  JTPF  also  provided  some  clarifications  on  Article  7  of  the  AC  and  the 
interaction  between  Mutual  Agreement  Procedures  and  judicial  appeals.  Each 
Member State has provided information to clarify the situation prevailing in its case. 
Further  information  is  available  in  Annex  VIII  of  the  JTPF  report  on  the 
interpretation of some provisions of the AC. 

THE ARBITRATION CONVENTION AND RELATED ISSUES 

With  regard  to  the  state  of  play  concerning  ratification  of  the  Convention  on  the 
accession  of  new  Member  States  to  the  Arbitration  Convention12,  the  ratification 
process has been finalised in 2009. 

26. 

27. 

28. 

29. 

3. 

30. 

11 
12 

See Staff Working Document. 
OJ C/2005/160 of 30/06/2005, p. 1-22. 

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31. 

32. 

33. 

34. 

35. 

4. 

36. 

37. 

38. 

On  23  June  2008  the  Council  adopted  a  Decision13  extending  the  scope  of  the 
Arbitration Convention to Bulgaria and Romania. The Decision entered into force on 
1 July 2008. 

Taxpayers  in  nearly  all  Member  States  are  now  covered  by  the  Arbitration 
Convention  for  future  transactions.  Further  information  is  available  on  the  Council 
website14. 

Member States have also reported on the implementation of the recommendation on 
the suspension of tax collection included in the Code of Conduct adopted in 2004. By 
the end of March 2009, all Member States had confirmed that suspension is possible 
or will become available. Further information is available in Annex IX of the JTPF 
report on the interpretation of some provisions of the AC. This issue will need further 
monitoring in the future to examine how it is applied in practice. 

The annual monitoring exercise carried out to examine the number of pending cases 
under  the  EU  Arbitration  Convention  revealed  that  the  number  of  long-outstanding 
transfer pricing double tax cases has decreased. The Commission considers this trend 
to be a good step forward. 

It can also be seen from the table, however, that the number of new transfer pricing 
cases is still increasing, so the elimination of double taxation in these cases continues 
to require increased resources. 

CURRENT AND FUTURE WORK PROGRAMME OF THE JTPF 

The  work  programme  agreed  in  2007  contains  the  following  topics:  intra-group 
services,  small  and  medium-sized  enterprises,  cost  contribution  arrangements,  and 
monitoring of adopted instruments. In 2008 the JTPF started to examine the issue of 
intra-group services. 

In  future,  the  Forum  will  continue  the  monitoring  process  by  examining  the 
implementation  of  the  Code  of  Conduct  on  transfer  pricing  documentation  and  the 
Guidelines on APAs. The intention is that Member States and business members will 
report on the implementation of the different instruments and on practical problems 
arising  from  their  implementation.  The  next  monitoring  exercise  will  look  at  the 
Code of Conduct on transfer pricing documentation and work will start in 2009. 

As  regards  the  Arbitration  Convention,  the  Commission  notes  that  the  following 
issues  need  further  discussion:  the  possibility  of  setting  up  a  permanent  and 
independent  secretariat  and  the  interaction  between  the  Arbitration  Convention  and 
Article 25.5 of the OECD Model Tax Convention. 

13 
14

OJ L/2008/174 of 03/07/2008, p. 1-5. 

http://www.consilium.europa.eu/cms3_Applications/applications/Accords/details.asp?cmsid=2

97&id=2004119&lang=en&doclang=en. 

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5. 

39. 

40. 

41. 

42. 

43. 

44. 

45. 

46. 

COMMISSION CONCLUSIONS 

Regarding the work of the JTPF in the period from March 2007 to March 2009, the 
Commission  expresses  its  thanks  to  the  JTPF  members  for  their  constructive 
contributions  to  pragmatic  recommendations  in  reaching  solutions  to  the  issues 
identified. 

In reporting on penalties and the Arbitration Convention, the JTPF fulfils one of the 
main  objectives  of  its  mandate  by  facilitating  better  implementation  of  the 
Arbitration  Convention.  The  Commission  also  notes  the  importance  of  the  annexes 
included in these JTPF reports, which provide useful background information. 

The  Commission  fully  supports  the  conclusions  and  suggestions  of  the  JTPF  in  its 
reports on penalties and transfer pricing and on the interpretation of some provisions 
of  the  AC.  On  the  basis  of  this  work,  the  Commission  has  drawn  up  the  attached 
proposal for a revised Code of Conduct for the Arbitration Convention. 

The  Commission  considers 
the 
recommendations  included  in  the  proposal  for  a  revised  Code  of  Conduct  will 
improve  the  efficiency  of  the  instrument  and  should  lead  to  quicker  resolution  of 
transfer pricing disputes. 

that,  once  adopted  by  Member  States, 

The Commission therefore invites the Council to endorse the proposal for a revised 
Code  of  Conduct  for  the  Arbitration  Convention  and  invites  Member  States  to 
rapidly  implement  the  new  recommendations  in  their  national  legislation  or 
administrative  rules.  Furthermore,  Member  States  are  invited  to  allocate  sufficient 
resources  to  the  resolution  of  transfer  pricing  disputes  so  that  they  can  be  settled 
quickly. 

The Commission notes that the Code of Conduct for the AC includes a monitoring 
procedure,  which  has  led  to  recommendations  to  improve  the  AC  process.  It 
considers  that  the  increase  in  the  number  of  new  cases  submitted  under  the  AC 
process  contributes  to  reducing  double  taxation  within  the  internal  market,  and 
indicates increased confidence by taxpayers in the efficiency of the AC process. 

Nevertheless,  the  Commission  recognises  that  future  revisions  and  updates  of  the 
Code may be required in the light of future experience, and will continue to monitor 
the  functioning  of  the  AC  with  a  view  to  proposing  any  necessary  improvements, 
looking  in  particular  at  the  trend  in  the  resolution  of  cases  and  international 
developments in dispute resolution through arbitration. 

On  thin  capitalisation  disputes,  the  Commission  is  of  the  opinion  that  as  the  AC 
refers  to  profits  arising  from  commercial  and  financial  relations  without  seeking  to 
differentiate  between  different  types  of  profit,  all  aspects  of  thin  capitalisation 
adjustments are covered by the AC. Whilst the Commission recognises the value of 
the agreement that interest rates are covered by the AC, different interpretations on 
whether  —  or  not  —  loan  amounts  come  under  the  AC  leads  to  uncertainty, 
increased  compliance  burden  and  potential  double  taxation.  Member  States  are 
therefore invited to consider permitting access to the Arbitration Convention on the 
above aspects of thin capitalisation disputes with a view to the elimination of double 
taxation. 

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47. 

48. 

Member  States  are  also  invited  to  amend  their  unilateral  declarations  on  the 
definition  of  the  term  ‘serious  penalty’  to  narrow  the  scope  and  better  reflect  the 
recommendation  of  the  Forum  that  a  serious  penalty  should  only  be  applied  in 
exceptional cases like fraud. 

Member States are invited to report every two years to the Commission on measures 
they  have  taken  to  implement  this  revised  Code  of  Conduct  and  its  practical 
functioning. On the basis of these reports, the Commission will periodically review 
the Code of Conduct. 

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ANNEX 

DRAFT REVISED 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 ENTREPRISES 

THE  COUNCIL  OF  THE  EUROPEAN  UNION AND THE  REPRESENTATIVES 
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 adjustment of profits of associated enterprises 
(the ‘Arbitration Convention’), 

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

NOTING  the  Commission  Communication  of  XXX  on  the  work  of  the  EU  Joint 
Transfer  Pricing  Forum  in  the  period  March  2007  to  March  2009,  based  on  the 
reports  of  the  JTPF  on  penalties  and  transfer  pricing,  and  on  the  interpretation  of 
some provisions of the Arbitration Convention, 

EMPHASISING  that  the  Code  of  Conduct  is  a  political  commitment  and  does  not 
affect  the  Member  States’  rights  and  obligations  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 a more global level, 

ENDORSING the conclusions of the JTPF report on penalties, 

HEREBY ADOPT THE FOLLOWING REVISED CODE OF CONDUCT: 

Without prejudice to the respective spheres of competence of the Member States 
and the Community, this revised Code of Conduct concerns the implementation 
of  the  Arbitration  Convention  and  certain  related  issues  concerning  mutual 
agreement procedures under double tax treaties between Member States. 

1. Scope of the Arbitration Convention 

1.1 EU triangular transfer pricing cases 

a)  For  the  purpose  of  this  Code,  a  EU  triangular  case  is  a  case  where,  in  the  first 
stage  of  the  Arbitration  Convention  procedure,  two  EU  Competent  Authorities 
cannot  fully  resolve  any  double  taxation  arising  in  a  transfer  pricing  case  when 
applying  the  arm’s  length  principle  because  an  associated  enterprise  situated  in 
(an)other  Member  State(s)  and  identified  by  both  EU  Competent  Authorities 
(evidence based on a comparability analysis including a functional analysis and other 
related  factual  elements)  had  a  significant  influence  in  contributing  to  a  non-arm’s 
length result in a chain of relevant transactions or commercial/financial relations and 

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is  recognised  as  such  by  the  taxpayer  suffering  the  double  taxation  and  having 
requested the application of the provisions of the Arbitration Convention. 

b) The scope of the Arbitration Convention includes all EU transactions involved in 
triangular cases among Member States. 

1.2 Thin capitalisation 

The Arbitration Convention makes clear reference to profits arising from commercial 
and financial relations but does not seek to differentiate between these specific profit 
types. Therefore, profit adjustments arising from financial relations, including a loan 
and its terms, and based on the arm’s length principle are to be considered within the 
scope of the Arbitration Convention. 

2. Admissibility of a case 

On  the  basis  of  Article  18  of  the  Arbitration  Convention,  Member  States  are 
recommended to consider that a case is covered by the Arbitration Convention when 
the request is presented in due time after the date of entry into force of accession by 
new Member States to the Arbitration Convention, even if the adjustment applies to 
earlier fiscal years. 

3. Serious penalties 

As  Article  8(1)  provides  for  flexibility  in refusing  to  give  access  to  the  Arbitration 
Convention due to the imposition of a serious penalty, and considering the practical 
experience acquired since 1995, Member States are recommended to clarify or revise 
their  unilateral  declarations  in  the  Annex  to  the  Arbitration  Convention  in  order  to 
better reflect that a serious penalty should only be applied in exceptional cases like 
fraud. 

4.  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 adjustment’, is considered as the starting point for the three-year period. 

As  far  as transfer pricing cases are concerned, Member States are recommended to 
apply this definition also to the determination 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. 

5.  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  Arbitration  Convention,  a  case  will  be 
regarded as having been submitted according to Article 6(1) when the taxpayer 
provides the following: 

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a) 

b) 

c) 

d) 

e) 

f) 

g) 

h) 

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 relevant transactions; 

details  of  the  relevant  facts  and  circumstances  of  the  case  (including 
details of the relations between the enterprise and the other parties to the 
relevant transactions); 

identification of the tax periods concerned; 

copies  of  the  tax  assessment  notices,  tax  audit  report  or  equivalent 
leading to the alleged double taxation; 

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; 

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; 

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 
Competent Authorities; and 

any  specific  additional 
Authority within two months upon receipt of the taxpayer’s request. 

information  requested  by 

the  Competent 

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

a) 

b) 

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

the date on which the Competent Authority receives the request and the 
minimum information as stated under point 5(i). 

6. Mutual agreement procedures under the Arbitration Convention 

6.1 General provisions 

a) 

The arm’s length principle will be applied, as advocated by the OECD, without 
regard to the immediate tax consequences 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. 

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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 Competent Authorities in accordance with point 5(ii) of this Code. 
However, it is recognised that in some situations (e.g. imminent resolution of 
the  case  or  particularly  complex  transactions,  or  triangular  cases),  it  may  be 
appropriate to apply Article 7(4) (providing for time limits to be extended) to 
agree a short extension. 

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. 

6.2 EU triangular transfer pricing cases 

a)  As  soon  as  the  Competent  Authorities  of  the  Contracting  States  have  agreed 
that  the  case  under  discussion  is  to  be  considered  a  EU  triangular  case  they 
should immediately invite the other EU Competent Authority(ies) to take part 
in  the  proceedings  and  discussions  as  (an)  observer(s)  or  as  (an)  active 
stakeholder(s)  and  decide 
their  favoured  approach. 
Accordingly,  all  information  should  be  shared  with  the  other  EU  Competent 
Authority(ies)  through  for  example  exchanges  of  information.  The  other 
Competent  Authority(ies)  should  be  invited  to  acknowledge  the  actual  or 
possible involvement of ‘their’ taxpayer. 

together  which 

is 

b)  One of the following approaches may be adopted by the Competent Authorities 
involved to resolve double taxation arising from EU triangular cases under the 
Arbitration Convention. 

1. 

2. 

The  Competent  Authorities  can  decide  to  take  a  multilateral  approach 
(immediate  and  full  participation  of  all  the  Competent  Authorities 
concerned); or 

The  Competent  Authorities  can  decide  to  start  a  bilateral  procedure, 
whereby  the  two  parties  to  the  bilateral  procedure  are  the  Competent 
Authorities that identified (based on a comparability analysis including a 
functional  analysis  and  other  related  factual  elements)  the  associated 
enterprise  situated  in  another  Member  State  that  had  a  significant 
influence  in  contributing  to  a  non-arm’s  length  result  in  the  chain  of 
relevant transactions or commercial/financial relations, and should invite 
the other EU Competent Authority(ies) to participate as (an) observer(s) 
in the Mutual Agreement Procedure discussions; or 

3. 

The  Competent  Authorities  can  decide  to  start  more  than  one  bilateral 
procedure  in  parallel  and  should  invite  the  other  EU  Competent 
Authority(ies) to participate as (an) observer(s) in the respective Mutual 
Agreement Procedure discussions. 

Member States are recommended  to apply  a  multilateral  procedure  to  resolve 
such  double  taxation  cases.  However  this  should  always  be  agreed  by  all  the 
Competent  Authorities,  based  on  the  specific  facts  and  circumstances  of  the 
case.  If  a  multilateral  approach  is  not  possible  and  a  two  (or  more)  parallel 

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bilateral  procedures  are  started,  all  relevant  Competent  Authorities  should  be 
involved  in  the  first  stage  of  the  Arbitration  Convention  procedure  either  as 
Contracting  States  in  the  initial  Arbitration  Convention  application  or  as 
observers. 

c) 

The  status  of  observer  may  change  to  that  of  stakeholder  depending  on  the 
development of the discussions and evidence presented. If the other Competent 
Authority(ies) want(s) to participate in the second stage (arbitration), it (they) 
has (have) to become (a) stakeholder(s). 

If the other EU Competent Authority(ies) remain(s) throughout as (a) party(ies) 
to  the  discussions  as  (an)  observer(s)  only,  that  has  no  consequences  for  the 
application of the provisions of the Arbitration Convention (e.g. timing issues 
and procedural issues).  

Participation as an observer does not bind the other Competent Authority(ies) 
to the final outcome of the Arbitration Convention procedure. 

In  the  procedure,  any  exchange  of  information  must  comply  with  the  normal 
legal and administrative requirements and procedures. 

d) 

The  taxpayer(s)  should,  as  soon  as  possible,  inform  the  tax  administration(s) 
involved  that  (an)other  party(ies),  in  (an)other  Member  State(s),  could  be 
involved in the case. That notification should be followed in a timely manner 
by the presentation of all relevant facts and supporting documentation. Such an 
approach  will  not  only  lead  to  quicker  resolution  but  also  guard  against  the 
failure  to resolve double taxation issues due to differing procedural deadlines 
in the Member States. 

6.3 Practical functioning and transparency  

a) 

b) 

c) 

d) 

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  bilateral  (or 
multilateral) basis. 

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. 

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. 

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. 

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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  5(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) 

(ii) 

if the Competent Authority does not believe that profits of the enterprise 
are included, or are likely to be included, in the profits of an enterprise of 
another Contracting State, it will inform the enterprise of its doubts and 
invite it to make any further comments; 

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  satisfactory  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(s) of its decision and attach a copy of the information 
as specified under point 5(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 
the  mutual 
agreement procedure will also inform - on the basis of information available to 
it  -  the  Competent  Authority  of  the  other  Contracting  State(s)  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. 

initiating 

6.4 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 taxation 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; 

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b) 

c) 

(iii)  how the case might be resolved with a view to the elimination of double 

taxation together with a full explanation of the proposal. 

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 position and a list of all other documents used for the 
adjustment. 

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) 

ii) 

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

the date on which the Competent Authority receives the request and the 
minimum information as stated under point 5(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) 

(ii) 

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(ies) accordingly and 
make such adjustments or allow such relief as quickly as possible; 

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 Authority(ies) setting out its reasons 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: 

aa) 

the date of the  tax assessment notice, i.e. final decision 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 5(i). 

f) 

Contracting States will further undertake any appropriate steps to speed up all 
procedures  wherever  possible.  In  this  respect,  Contracting  States  should 

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envisage to organise regularly, and at least once a year, face-to-face-meetings 
between  their  Competent  Authorities  to  discuss  pending  mutual  agreement 
procedures (provided that the number of cases justifies such regular meetings). 

6.5 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  on 
Capital, implemented in the double tax treaties between Member States. 

7. Proceedings during the second phase of the Arbitration Convention 

7.1 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 conditions, of any alteration of the list. 

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 legal, tax and especially transfer pricing experience. 

c) 

d) 

e) 

f) 

Contracting States may also indicate on their list those independent persons of 
standing who fulfil the requirements to be elected as Chairman. 

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. 

The aggregate list of all independent persons of standing will be published on 
the Council’s web-site. 

Independent  persons  of  standing do not have to be nationals of or resident in 
the  nominating  state,  but  do  have  to  be  nationals  of  a  Contracting  State  and 
resident within the territory to which the Arbitration Convention applies. 

g)  Competent  authorities  are  recommended  to  draw  up  an  agreed  declaration  of 
acceptance  and  a  statement  of  independence  for  the  particular  case,  to  be 
signed by the selected independent persons of standing. 

7.2 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 administration 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 initiative for the establishment of the advisory 

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commission  and  arranges  for  its  meetings,  in  agreement  with  the  other 
Contracting State(s). 

b)  Competent Authorities should establish the advisory commission no later than 
6  months  following  expiry  of  the  period  referred  to  in  Article  7  of  the 
Arbitration  Convention.  Where  one  Competent  Authority  does  not  do  this, 
another Competent Authority involved is entitled to take the initiative. 

c) 

d) 

e) 

f) 

The advisory commission will normally consist of two independent persons of 
standing in addition to its Chairman and the representatives of the Competent 
Authorities. For triangular cases, where an advisory commission is to be set up 
under the multilateral approach, the Contracting States will have regard to the 
requirements  of  Article  11(2)  of  the  Arbitration  Convention,  introducing  as 
necessary  additional  rules  of  procedure, 
the  advisory 
commission,  including  its  Chairman,  is  able  to  adopt  its  opinion  by  a  simple 
majority of its members. 

to  ensure 

that 

The  advisory  commission  will  be  assisted  by  a  secretariat  for  which  the 
facilities  will  be  provided  by  the  Contracting  State  that  initiated  the 
establishment  of  the  advisory  commission  unless  otherwise  agreed  by  the 
Contracting States concerned. For reasons of independence, this secretariat 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. 

The place where the advisory commission meets and the place where its opinion 
is to be delivered may be determined in advance by the Competent Authorities of 
the Contracting States concerned. 

Contracting  States  will  provide  the  advisory  commission  before  its  first 
meeting, with all relevant documentation and information and in particular all 
documents,  reports,  correspondence  and  conclusions  used  during  the  mutual 
agreement procedure. 

7.3 Functioning of the advisory commission 

a)  A  case  is  considered  to  be  referred  to  the  advisory  commission  on  the  date 
when  the  Chairman  confirms  that  its  members  have  received  all  relevant 
documentation and information as specified under point 7.2(f). 

b) 

c) 

The  proceedings  of  the  advisory  commission  will  be  conducted  in  the  official 
language or languages of the Contracting States involved, unless the Competent 
Authorities  decide  otherwise  by  mutual  agreement,  taking  into  account  the 
wishes of the advisory commission. 

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 Arbitration 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 

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the tax administration on the additional income, or equivalent which resulted or 
may result in double taxation 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) 

ii) 

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 advisory commission; 

the fees of the independent persons of standing will be fixed at Euro 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. 

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. 

7.4 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) 

f) 

the opinion; 

the place where the opinion is delivered; 

g) 

the date on which the opinion is delivered; 

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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) 

ii) 

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. 

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 
communicated  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 (or more in the 
case  of  triangular  cases)  original  copies,  one  to  be  sent  to  each  Competent 
Authority  of  the  Contracting  States  involved  and  one  to  be  transmitted  to  the 
Secretariat  General  of  the  Council  for  archiving.  If  there  is  agreement  on  the 
publication  of  the  opinion,  the  latter  will  be  rendered  public  in  the  original 
language(s) on the website of the Commission. 

8. Tax collection and interest charges during cross-border dispute resolution 
procedures  

a)  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. 

b)  Considering that during Mutual Agreement Procedure negotiations, a taxpayer 
should  not  be  adversely  affected  by  the  existence  of  different  approaches  to 
interest  charges  and  refunds  during  the  time  it  takes  to  complete  the  Mutual 
Agreement  Procedure,  Member  States  are  recommended  to  apply  one  of  the 
following approaches: 

– 

– 

– 

tax to be released for collection and repaid without attracting any interest, or 

tax to be released for collection and repaid with interest, or 

each case to be dealt with on its merits in terms of charging or repaying interest 
(possibly during the Mutual Agreement Procedure process). 

9. Accession of new EU Member States to the Arbitration Convention  

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Member  States  will endeavour  to sign and  ratify 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. 

10. 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. 

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