COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Double Taxation in the Single Market
Date: 2011-11-11
Institutions: European Commission
Subjects: arbitration, capital transfer tax, corporation tax, double taxation, single market, tax on profits of self-employment

EUROPEAN COMMISSION 

Brussels, 11.11.2011 
COM(2011) 712 final 

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

Double Taxation in the Single Market 

 
 
 
 
  
 
TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

5. 

5.1. 

5.2. 

5.3. 

Introduction .................................................................................................................. 3 

What is double taxation?.............................................................................................. 4 

Is double taxation a problem? ...................................................................................... 6 

Current responses and their limitation to solving the main problems.......................... 8 

Possible solutions ......................................................................................................... 9 

Strengthening of existing instruments.......................................................................... 9 

Extension of the coverage and the scope of double tax conventions........................... 9 

Steps intended to come to a more consistent interpretation and application of DTC 
provisions between the EU MS.................................................................................. 10 

5.4. 

Ease and accelerate dispute resolution within the EU ............................................... 10 

6. 

Further steps and conclusions .................................................................................... 11 

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1. 

INTRODUCTION 

Promoting a more competitive economy as a driver of smart and sustainable growth 
is  a  real  need,  especially  in  this  period  of  crisis  which  has  made  clear  just  how 
interdependent  the  EU  Member  States  (MS)’  economies  are.  The  Commission 
underlined this as part of its Europe 2020 strategy1, adding that the full range of EU 
policies, and in particular the single market, must be used more effectively, removing 
the remaining obstacles, to achieve these goals. 

In particular, the European Council conclusions of 24/25 March and 24th June 2011 
underlined  the  need  for  pragmatic  coordination  of  tax  policies  as  an  element  of  a 
stronger economic policy coordination in the euro area to support fiscal consolidation 
and economic growth. 

Growth depends mainly on healthy markets, where competition stimulates business. 
Several  obstacles  have  still  to  be  addressed  to  deepen  the  single  market,  including 
obstacles  to  cross-border  activity  and  the  legal  complexity  from  having  up  to  27 
different sets of rules for some transactions. 

Tax  systems  in  the  EU  do  not  contribute  to  simplify  the  present  legal  framework. 
Almost  20  years  after  the  creation  of  the  single  market,  business  and  individuals 
operating  in  the  EU  market  risk  being  taxed  by  more  than  one  MS  on  the  same 
revenue  as  soon  as  they  cross  an  internal  border  while,  in  some  cases,  they  could 
escape all taxation2. In a period when MS are looking for secure and additional tax 
revenues, it is important for their credibility towards their taxpayers that they take the 
necessary  measures  to  remove  double  taxation  and  double  non-taxation.  Besides, 
both situations can jeopardize the genuine idea of the single market and are therefore 
absolutely unacceptable. 

The  exercising  of  the  fundamental  freedoms  to  cross-border  activities  in  the  EU 
internal  market  by  business  and  citizens  should  never  in  itself  lead  to  increased 
taxation in comparison with the taxation of similar taxpayers within their own MS. 
Double  taxation  in  a  cross-border  context  as  a  result  of  inconsistent  interaction  of 
different  domestic  tax  systems,  is  a  major  impediment  and  a  real  challenge  for  the 
internal market3. The principle that double taxation resulting from uncoordinated tax 
policies ought to be removed should be a key element of every long-term strategy of 
the Commission. 

Both  the  negative  role  played  by  double  taxation  and  the  need  for  improving  the 
functioning  of  the  internal  market  through  enhanced  tax  policy  coordination  have 

1 
2 

3 

COM(2010) 2020, 3.3.2010. 
The  Commission  is  concerned  by  current  situations  of  double  non-taxation  within  the  EU.  The 
Commission is considering a public consultation in the area of corporate double non-taxation, as also 
recently suggested by MEP, Ms Bowles, Chair of the Economic and Monetary Affairs Committee of the 
EU Parliament (Brussels Tax Forum 2011). 
COM(2006)823, 19.12.2006, point 1. 

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been variously underlined.4 Moreover, evidence 5 shows that many EU taxpayers are 
concerned by double taxation issues.  

As  previously  announced6  this  Communication  identifies  cross-border  double 
taxation  problems7  and  their  impact  on  the  internal  market.  It  explains  which 
solutions have already been explored by the MS and the EU institutions and which 
areas  need  further  coordinated  actions  firstly  to  prevent  double  taxation  cases  and 
then  to  ensure  an  effective,  quick  and  low-cost  method  to  solve  disputes  in  double 
taxation conflicts. 

Such  successful  actions  would  make  the  EU  a  more  attractive  place  to  operate  a 
business and fair competition in the internal market would be enhanced. This would 
contribute to the objective of exploiting the full potential of an integrated EU Market 
as  advocated  in  the  Single  Market  Act8  and  to  removing  obstacles  to  the  effective 
exercise of EU citizens' rights as highlighted in the EU Citizenship report 2010.9 

2. 

WHAT IS DOUBLE TAXATION? 

Double taxation, in the sense discussed here, may be described as the imposition of 
comparable  taxes  by  two  (or  more)  tax  jurisdictions  in  respect  of  the  same  taxable 
income  or  capital10.  Although  double  taxation  can  also  occur  in  purely  domestic 
situations,  in  particular  as  far  as  it  concerns  economic  double  taxation,  this 
Communication focuses on cross-border situations only. 

In  an  international  context,  double  taxation  may  arise  as  a  consequence  of  dual 
residence or of taxation in both the State of residence and the State of source. 

The following examples illustrate both situations. 

Example 1. As regards dual tax residence, double taxation may be generated by 
the  application  of  diverging  criteria.  For  example,  a  company  may  be 
considered resident for tax purposes in the MS in which it is legally registered 
and, simultaneously, in a different MS in which it develops its main activity. In 
that situation the company could potentially be obliged to pay corporation tax 
on a worldwide basis in both MS and consequently pay tax on the same income 
twice. 

4 

5 

6 
7 
8 
9 

10 

See, for instance, the Conclusions of the Heads of State or Government of the Euro Area of 11 March 
2011.  
See Commission public consultation 
http://ec.europa.eu/taxation_customs/common/consultations/tax/2010_04_doubletax_en.htm and 
footnotes 25 and 26. 
COM(2010)769, 20.12.2010, point 4.1. 
Purely domestic double taxation, whenever it occurs, it is a matter for national legislator to regulate. 
COM(2011)206, 13.4.2011. 
Commission's  EU  Citizenship  Report  2010  'Dismantling  the  obstacles  to  EU  citizens  rights' 
COM(2010)603, 27.10.2010. 
See,  IBFD  Tax  Glossary,  entry  "double  taxation".  Traditionally  it  is  divided  into  two  kinds,  juridical 
double taxation and economic double taxation. In the case of juridical double taxation two comparable 
taxes  are  applied  to  the  same  taxpayer  in  respect  of  the  same  income  or  capital.  Generally  the 
expression economic double taxation is used when different taxpayers are taxed in respect of the same 
income or capital. 

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Example  2.  MS  usually  tax  non-resident  taxpayers  in  respect  of  income  from 
sources  in  that  State.  This  source  taxation  may  overlap  with  the  worldwide 
taxation  in  the  State  of  residence  of  the  taxpayer.  For  example  an  artist, 
resident of a MS, signs a comprehensive contract to perform concerts in several 
MS,  authorizing  the  radio  broadcast  of  the  concerts  and  also  the  feature  of  a 
live  album  from  the  tour.  The  income  deriving  from  that  contract  might  be 
taxed  twice  or  more  (in  the  State  of  residence  and  in  the  States  of  the 
performances) and also copyright royalties of the artist might be taxed twice. 

Generally MS already relieve double taxation through unilateral11, bilateral12 or even 
multilateral  measures.13  However,  at  the  present  stage  of  EU  law,  they  are  not 
obliged  to  eliminate  double  taxation  as  a  general  rule.  It  is  true  that  MS  rules  that 
give  preference  to  domestic  situations  as  opposed  to  cross-border  situations,  for 
example  in  the  area  of  economic  double  taxation,  are  contrary  to  the  fundamental 
freedoms, in the absence of pertinent justifications.14 However, double taxation is not 
contrary  to  the  treaties,  as  long  as  it  results  from  the  parallel  exercise  of  tax 
sovereignty by the MS concerned.15 

In conclusion, in the current state of EU law, in the absence of an EU initiative, MS 
are not obliged to prevent double taxation of the latter type, which one could also call 
"non-discriminatory" double taxation, since this phenomenon falls outside the scope 
of the fundamental freedoms16. 

Mr  Damseaux,  a  Belgian  resident,  received  dividends  from  2005  to  2007  from  a 
French  company.  Those  dividends  were  subject  in  France  to  a  withholding  tax  of 
15%. The amount remaining after that taxation (85% of the dividends) was subject to 
an additional 15% withholding tax in Belgium. The total taxation of those dividends 
was therefore 27.75%. 

On the other hand, dividends paid by Belgian companies to a Belgian resident were 
solely taxed at the rate of 15% under Belgian law. 

The ECJ ruled that, in so far as EU law does not lay down any general criteria for 
the attribution of areas of competence between the MS in relation to the elimination 
of double taxation within the Community, MS are not obliged to prevent the resulting 
juridical double taxation.17 

11 
12 

13 

14 

15 
16 
17 

E.g. by exempting the foreign income of a resident taxpayer or by granting a foreign tax credit. 
Bilateral measures provided by double tax conventions (DTC) on which basis two countries agree how 
and to what extent double taxation between their residents is relieved. 
E.g. the Convention between the Nordic Countries for the avoidance of double taxation with respect to 
taxes  on  income  and  on  capital  or  the  so-called  "Arbitration  Convention"  (AC):  Convention  on  the 
elimination  of  double  taxation  in  connection  with  the  adjustment  of  associated  enterprises 
(90/436/EEC), OJ L 225, 20.8.1990. 
E.g.  ECJ,  12  December  2002,  C-324/00  (Lankhorst-Hohorst),  para.  32;  ECJ,  14  December  2006,  C-
170/05 (Denkavit Internationaal), para. 39; ECJ, 8 November 2007, C-379/05 (Amurta), para. 28; ECJ, 
1 July 2010, C-233/09 (Dijkman), para. 23; ECJ, 22 December 2010 C-287/10 (Tankreederei I), para 
15. 
ECJ, 14 November 2006 (Kerckhaert-Morres); 12 February 2009 (Block); 16 July 2009 (Damseaux). 
Opinion of the A.G. Geelhoed in Kerckhaert-Morres, para.38. 
ECJ, Damseaux, cit. 

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3. 

IS DOUBLE TAXATION A PROBLEM? 

MS understand the importance of the elimination of double taxation and avoid it in 
most cases. However some double taxation still remains and creates barriers to cross-
border establishment, activity and investment in the EU which it is in the interest of 
business and citizens to remove, as mentioned in the recent Monti report18. 

Double taxation is one of the issues of most concern for EU citizens and business. In 
the EU Citizenship report 2010, problems related to double taxation were identified 
amongst  the  main  obstacles  encountered  by  citizens  in  cross-border  situations. 
Evidence  suggests  that,  according  to  public  opinion,  double  taxation  is  a  pressing 
issue.19  Moreover,  double  taxation  is  in  itself  a  source  of  legal  uncertainty  for 
taxpayers  as  frequently  pointed  out  by  business  associations  and  representatives  of 
taxpayers.20 

Indeed,  the  results  of  three  recent  Commission  public  consultations21  confirm  that 
EU taxpayers remain significantly concerned by double taxation issues. 

In particular, in the specific public consultation on double taxation, it was said that 
the problem was significant: on average more than 20% of the reported cases were 
above 1 million € for corporate taxpayers and more than 35% were above 100.000 € 
for individuals. 

It is also important to ensure that the set of rules intended to prevent double taxation 
be  transparent,  in  order  to  avoid  diverging  interpretations  and  thus  achieve  the 
intended result. In addition, lack of transparency can in itself be detrimental to cross-
border activity.22 

Unrelieved double taxation increases the overall tax burden and therefore can have a 
negative  impact  on  capital  investment.  Empirical  research  suggests  that  corporate 
taxation  has  a  non-negligible  impact  on  foreign  direct  investment  location 
decisions23.  This  suggests  that  double  taxation  within  the  EU  may  discourage  non-
EU investments and jeopardize the competitiveness of EU enterprises. 

In the absence of actual tax data provided by national administrations, it is difficult to 
obtain completely reliable estimates of the direct impact of double taxation.24 In fact, 

18 

19 

20 

21 

22 
23 

24 

Report  to  the  President  of  the  European  Commission  (by  former  EU  Commissioner  Monti),  "A  New 
Strategy for the Single Market", 9 May 2010, para.3.5., 83. 
For example, during the Meeting of the Committee on Petitions of the European Parliament held last 14 
and 15 June 2011, 4 of the 11 Petitions included in the Taxation chapter referred to double taxation. See 
also  September  2011  Eurobarometer  study  on  obstacles  citizens  face  in  the  Internal  Market 
http://ec.europa.eu/public_opinion/archives/quali/ql_obstacles_en.pdf  
MEDEF  comments  on  Proposed  changes  in  article  15  §  2  of  the  OECD  model  convention,  2007,  in 
http://www.oecd.org/dataoecd/14/62/39547932.pdf. 
http://ec.europa.eu/taxation_customs/common/consultations/tax/2010_04_doubletax_en.htm; 
http://ec.europa.eu/taxation_customs/common/consultations/tax/2010_06_inheritance_en.htm; 
http://ec.europa.eu/taxation_customs/common/consultations/tax/2010_08_royalty_en.htm. 
OECD. Tax Effects on Foreign Direct Investment, 2007, 33. 
See,  for  instance,  Hajkova,  D.  et  al.,  “Taxation,  Business  Environment  and  FDI  Location  in  OECD 
in 
Countries”,  OECD  Economics  Department  Working 
http://dx.doi.org/10.1787/874058477248. 
Impact Assessment of the proposal for a Council Directive on a CCCTB, 16.3.2011. 

Papers,  No. 

2006, 

502, 

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taxpayers,  if  they  have  the  choice,  will  avoid  double  taxation  by  adapting  their 
conduct  to  the  actual  circumstances.  Therefore,  double  taxation  becomes  not  just  a 
burden but even a barrier to economic activity.25 

This  indirect  impact  is  even  more  difficult  to  measure.  Nevertheless,  a  recent 
publication  estimates  that  after  the  adoption  of  a  double  tax  convention  (DTC), 
bilateral portfolio investment flows between the treaty countries can increase by up 
to 50%. DTC are also associated with an increase in equity valuation, and appear to 
be  a  factor  in  lowering  the  cost  of  equity  capital  in  the  treaty  countries  by 
approximately 0.24% per annum.26 

Sometimes  the  elimination  of  double  taxation,  even  when  legally  possible,  would 
involve an excessive burden both in time and administrative costs. The results of a 
2007  survey  carried  out  by  a  major  tax  firm27  showed  an  average  cost  of  tax 
compliance for corporate income taxation of 2.2% of taxes paid. Around 15% of the 
time  spent  on  compliance  activities  related  to  the  international  aspects  of  corporate 
taxation.  Moreover  14.6%  of  the  companies  and  31.0%  of  the  individuals  who 
answered on this point in the Public Consultation on Double Taxation decided not to 
seek any remedy to eliminate the double taxation. 

The 2010 EU Citizenship report mentions the inadequacy of "existing mechanisms to 
avoid double taxation". 

It  may  also  be  observed  that  the  accumulation  of  taxes  imposed  by  more  than  one 
State might lead to results that, in some Member States at least, would be considered 
as  confiscatory  and  thus  unlawful,  had  these  results  been  brought  about  by  the 
provisions of that State alone.  

Some  specific  examples  highlight  the  current  situation  where  citizens  and  business 
are  in  practice  likely  to  encounter  important  practical  obstacles  to  the  effective 
exercise of their rights and the smooth functioning of the internal market. 

In a petition addressed to the European Parliament28 a German citizen reported that 
he used to live in France and to work in Germany as a free-lancer for some German 
hospitals.  As  a  result  of  divergent  interpretations  of  the  DTC  between  France  and 
Germany  he  was  taxed  by  both  MS.  He  had  to  move  to  Germany  to  solve  his 
problem. 
An Italian citizen29 lives in Germany and works for an Italian transport company. He 
drives  a  truck  through  several  countries  of  the  European  Union.  As  a  result  of 
divergent interpretations of the DTC between Italy and Germany he has been taxed 

25 

26 

27 

28 
29 

The distinction between burden and barrier as regards double taxation was already mentioned in 1923 
by  the  League  of  Nations.  See  for  instance,  Economic  and  Financial  Commission,  Report  on  Double 
Taxation submitted to the Financial Committee, Document E.F.S.73. F.19, p.11, April 5th 1923. 
Parkih, Jain and Spahr, The impact of Double Taxation on Cross Border Equity Flows, Valuations and 
Cost of Capital, 2011, EFMA, Braga Meeting. 
PWC LLP, Total Tax Contribution, 2007 Survey of the Hundred Group of Finance UK Directors (the 
association of the 100 largest listed UK companies). 
EP, Committee of Petitions, Petition 1404/2010. 
EP, Committee of Petitions, Petition 1053/2010. 

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both by Germany and Italy. The mutual agreement procedure, initiated in 2005, did 
not end until 2010.  

The  Commission  is  also  concerned  about  double  non-taxation  and  is  currently 
reviewing the situation with a view to propose appropriate action. 

4. 

CURRENT RESPONSES AND THEIR LIMITATION TO SOLVING THE MAIN PROBLEMS 

Double taxation has already been addressed at the EU level. The Parent Subsidiary 
directive30, the Interest and Royalties directive31, the Arbitration Convention (AC)32, 
the achievements of the Joint Transfer Pricing Forum (JTPF) - notably the Code of 
conduct on the effective implementation of the AC33 -, and the Recommendation on 
withholding tax relief procedures 34 are relevant examples of these efforts. 

The  Commission  recently  proposed  a  directive  for  a  Common  Consolidated 
Corporate  Tax  Base  (CCCTB)  35.  Once  adopted,  it  will  solve  double  taxation 
problems,  at  EU  level,  for  the  multinational  groups  which  decide  to  opt  for  this 
instrument. 

However, as the scope of this proposal is limited, not all cases of double taxation will 
be  addressed:  only  eligible  companies  opting  for  the  system  can  benefit  from  the 
CCCTB regime (articles 2 and 6 of the Proposal) 36. 

Existing  instruments  are  insufficient  to  address  many  of  the  remaining  double 
taxation  situations.  In  particular,:  the  Interest  and  Royalties  directive  is  limited  in 
scope;  DTC  do  not  cover  all  taxes  relevant  from  a  Single  Market  perspective  (e.g. 
registration  duties),  do  not  provide  for  the  full  removal  of  double  taxation  and, 
notably, do not provide any uniform solution for triangular and multilateral relations 
between  MS;  the  time  needed  to  conclude  mutual  agreement  procedures  in  case  of 
double  taxation  disputes,  in  both  the  AC  and  the  DTC,  is  too  long  and  these 
procedures often do not succeed in solving the problems submitted. 

In addition, the existing instruments to relieve double taxation do not always function 
in  an  effective  manner.  In  particular,  DTC  provisions  are  not  interpreted  and 
implemented  consistently  by  the  MS  concerned.  Such  conflicting  practices  mainly 
concern the definition of notions of such as royalties, business income, dividends and 
permanent establishment. As a result, taxpayers may suffer double taxation, contrary 
to the objective pursued by the DTC. 

30 

31 

32 

33 
34 

35 
36 

Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent 
companies and subsidiaries of different MS (90/435/EEC). 
Council  Directive  of  3  June  2003  on  a  common  system  of  taxation  applicable  to  interest  and  royalty 
payments made between associated companies of different MS (2003/49/EC). 
Convention  on  the  elimination  of  double  taxation  in  connection  with  the  adjustment  of  associated 
enterprises (90/436/EEC), OJ L 225, 20.8.1990. 
http://ec.europa.eu/taxation_customs/taxation/company_tax/transfer_pricing/index_en.htm 
C/2009/7924, 
http://ec.europa.eu/taxation_customs/resources/documents/common/whats_new/c(2009)7924_en.pdf 
COM(2011)121; 16.3.2011. 
The  Proposal  for  a  directive  establishes  only  a  system  for  a  common  base  for  the  taxation  of  certain 
companies and groups of companies (article 1 of the Proposal). 

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Moreover,  EU  citizens  receiving  inheritances  across  borders  may  also  face  a 
disadvantage  that  is  an  inheritance  tax  burden  higher  than  it  would  have  been  in  a 
purely domestic situation in any of the Member States concerned. 

There are strong expectations that these problems, often complex from the taxpayer's 
perspective, should be addressed through solutions at EU level, where possible. For 
its part, the OECD (of which 21 EU MS are members) explicitly recognises the need 
to  tackle  obstacles  resulting  from  double  taxation37.  Moreover,  the  Monti  Report 
recommends  further  work  on  eliminating  tax  barriers  caused  by  double  taxation 
suffered  by  individuals.  Therefore,  there  seems  to  be  a  genuine  desire  among 
taxpayers and also MS that cross-border double taxation be tackled. 

5. 

POSSIBLE SOLUTIONS 

The problems that have been identified could be dealt with by improving the existing 
instruments  to  address  double  taxation  situations  or  by  proposing  new  instruments 
and solutions. 

Different  double  taxation  problems  may  be  addressed  differently,  some  through 
bilateral tax conventions, some possibly through EU legislation (within the limits of 
the  legal  basis  available  in  the  Treaty  on  the  Functioning  of  the  EU  (TFEU),  or  in 
other ways through specific solutions and instruments. 

These possible solutions include:  

5.1. 

Strengthening of existing instruments 

A  proposal  for  a  recast  of  the  Interest  and  Royalties  Directive  is  presented 
simultaneously with this communication. The proposed amendments to the existing 
text intend to reduce the number of cases where double taxation can occur as a result 
of  one  MS  applying  a  withholding  tax  on  a  payment  and  another  taxing  that  same 
payment. 

5.2. 

Extension of the coverage and the scope of double tax conventions 

The Commission considers that there is a need to complete the framework of DTC 
between the 27 MS38 and will encourage dialogue between MS in case of a dispute 
impeding the conclusion of a DTC. 

The  Commission  intends  to  examine  with  MS  and  experts  ways  of  addressing 
triangular situations39, and how to treat entities and taxes not covered by DTC within 
the EU. It will take appropriate initiatives, in particular for inheritance taxes. 

37 
38 
39 

See supra, note 3. 
On 1.1.2011, 10 bilateral relations between EU MS were not covered by DTC. 
In the area of transfer pricing, some work was undertaken by the JTPF; see the following footnote. 

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5.3. 

Steps  intended  to  come  to  a  more  consistent  interpretation  and  application  of 
DTC provisions between the EU MS 

tax 

Double taxation often results from interpretation conflicts. There is a need to assess 
the  scope  for  developing  in  the  EU,  where  possible,  a  common  understanding  of 
some  concepts  contained  in  DTC  applicable  between  MS  (e.g.  royalties,  business 
income,  dividends,  permanent  establishments, 
residence,  cross-border 
workers…).Depending on the case, it may be appropriate to have regard to identical 
or similar notions contained in EU law, as a specific EU dimension to the problem. 
Because of their importance for the internal market, it is appropriate to discuss these 
issues  at  EU  level.  However,  such  coordination  may  also  contribute  to  the 
discussions  held  by  international  bodies  such  as  the  OECD  and  the  UN,  including 
when it comes to developing wider international standards. Building on the positive 
JTPF  experience,  there  is  scope  to  examine  the  potential  benefits  of  setting  up  a 
forum  for  MS'  representatives  (EU  Forum  on  double  taxation).  On  the  basis  of  the 
discussions to be held in this forum, the Commission will consider the elaboration of 
a Code of Conduct on double taxation. 

5.4. 

Ease and accelerate dispute resolution within the EU 

The  AC  was  designed  to  provide  a  method  for  the  resolution  of  disputes  arising 
mainly from transfer pricing. However, despite the adoption (and the revision) of a 
Code  of  Conduct,  the  proper  functioning  of  the  AC  could  be  further  improved,  as 
shown  by  the  length,  in  general,  of  Mutual  Agreement  Procedures  (MAP)40.  With 
regard  to  the  AC,  over  the  last  5  years  for  which  figures  are  available,  half  of  the 
outstanding disputes at the end of each year have been in dispute for more than two 
years41. 

Contributions  to  the  2010  public  consultations  criticise  the  fact  that  DTC  do  not 
allow  timely  dispute  resolutions.  Taxpayers  usually  only  rely  on  the  dispute 
resolution mechanism provided by the relevant DTC, based on the old article 25 of 
the  OECD  Model  Tax  Convention.  However  this  is  not  fully  efficient:  contracting 
States  are  merely  required  to  endeavour  to  find  a  solution.  The  taxpayer  has  no 
guarantee  that  double  taxation  will  be  eliminated,  nor  that  the  tax  administrations 
will proceed swiftly. The OECD recognises the number of unresolved cases (21.3 % 
increase from 2008 to 2009) as a major concern42. 

From an EU perspective, the lack of an overall binding dispute resolution procedure 
is therefore an issue to be addressed, both for single market reasons and because of 
broader global competitiveness motivations (relating to the attractiveness of the EU 
to foreign investors). Neither the AC nor MS' DTC provide a completely successful 
method. 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/forum/jtpf/2010/ 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/forum/jtpf/2010/ 

40 
/jtpf_2010_06_08_number_open_cases_en.pdf 
41 
/jtpf_2010_06_08_number_open_cases_en.pdf 
42 

http://www.oecd.org/document/11/0,3746,en_2649_33747_46499831_1_1_1_1,00.html; 
increase compared from 2006 to 2009. 

EN 

10 

63.4  % 

   EN 

 
                                                 
A  possible  solution  is  contained  in  the  latest  version  of  Article  25  of  the  OECD 
Model  Tax  Convention  (2008),  which  provides  for  a  mutual  agreement  procedure 
with a binding dispute resolution procedure for all unresolved double taxation cases, 
if the taxpayer so requests. However, such provisions have so far been included only 
in a small number of DTCs concluded between MS.43 

The  Commission  sees  a  need  to  analyse  the improvements  that  can  be  made  to  the 
procedures for the resolution of double taxation disputes within the EU. In particular, 
the possibility of a mechanism to effectively and swiftly resolve these disputes in all 
areas of direct taxation should be explored. 

6. 

FURTHER STEPS AND CONCLUSIONS 

The Commission is determined to address relevant double taxation problems in the 
EU and to present initiatives. Two proposals lead the way. Those are: 

•  The proposal for a common consolidated corporate tax base – adopted in March 

2011; 

•  The  proposal  for  a  recast  of  the  interest  and  royalties  directive,  presented 

simultaneously with this Communication. 

In addition to these proposals, the Commission will: 

•  Present, shortly, possible solutions to tackle cross-border inheritance tax obstacles 

within the EU; 

•  Continue  to  make  use  of  the  recently  renewed  JTPF  to  address  transfer  pricing 

double taxation issues; 

•  Present  solutions  in  2012  on  cross-border  double  taxation  of  dividends  paid  to 

portfolio investors; 

•  Work on developing the options set out in this Communication, in particular the 
creation of a Forum on double taxation for purely EU tax matters, a proposal for a 
code  of  conduct  on  double  taxation  and  the  feasibility  of  an  efficient  dispute 
resolution  mechanism,  with  a  view  to  determining  the  most  effective  ways  for 
removing double taxation; 

•  As  regards  double  non-taxation,  launch  a  fact-finding  consultation  procedure  in 
order  to  establish  the  full  scale  of  this  phenomenon.  The  results  of  this 
consultation will be used to identify and develop the appropriate policy response. 

The  Commission  invites  the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee to discuss and support these orientations. 

All  interested  stakeholders  are  invited  to  express  their  views  on  this  initiative  and 
inform the Commission of the specific actions which they recommend. 

43 

e.g. FR and UK (19/6/2008), NL and UK (26/9/2008), DE and UK (30/3/2010). 

EN 

11 

   EN