COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a COUNCIL DIRECTIVE on Double Taxation Dispute Resolution Mechanisms in the European Union
Date: 2016-10-25
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: EU Member State, European tax cooperation, approximation of laws, corporation tax, double taxation, personal income tax, tax law

EN 

   EN 

   EUROPEAN COMMISSION  Strasbourg, 25.10.2016  SWD(2016) 343 final   COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  Accompanying the document Proposal for a COUNCIL DIRECTIVE on Double Taxation Dispute Resolution Mechanisms in the European Union {COM(2016) 686 final} {SWD(2016) 344 final}  
 
 
CONTENTS 

1. INTRODUCTION, BACKGROUND ...................................................................................... 5 

2. POLICY CONTEXT, DRIVERS, PROBLEM DEFINITION AND SUBSIDIARITY ....... 5 

2.1 Policy context .......................................................................................................................................... 5 

2.2 Scope of this impact assessment ............................................................................................................ 9 

2.3 Drivers ................................................................................................................................................... 13 

2.4 The problems identified........................................................................................................................ 14 

2.5. Consequences ....................................................................................................................................... 24 

2.6 Baseline Scenario .................................................................................................................................. 30 

2.7 The EU's right to act ............................................................................................................................. 33 

3. THE OBJECTIVES ................................................................................................................ 34 

3.1 General .................................................................................................................................................. 34 

3.2 Specific objectives in detail .................................................................................................................. 35 

3.3 How the objectives are linked to the problems ................................................................................... 36 

4. OPTIONS ............................................................................................................................... 37 

4.1. Baseline scenario - Status-quo/No Action .......................................................................................... 37 

4.2 Option A - improving implementation of the existing DTDRMs ...................................................... 38 

4.3. Option B – Establishing an enabling legal framework for broadened DTDRM ............................ 38 

4.4. Option C – A comprehensive new EU-specific double taxation resolution mechanism ................ 39 

5. ANALYSIS OF IMPACT ...................................................................................................... 40 

5.1 Impact on the problems encountered .................................................................................................. 40 

5.2 Economic impacts ................................................................................................................................. 40 

5.3 Social and societal impact .................................................................................................................... 44 

5.4 Impact on third countries..................................................................................................................... 45 

6. COMPARISON OF OPTIONS ............................................................................................ 45 

6.1 Comparison of Effectiveness ................................................................................................................ 45 

6.2 Comparison of efficiency ...................................................................................................................... 52 

6.3 Coherence with the Commission's overall objectives but also with the international developments
 ...................................................................................................................................................................... 56 

6.4 Comparison of options (summary) ...................................................................................................... 57 

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6.5 Preferred Option ................................................................................................................................... 57 

7. MONITORING AND EVALUATION ................................................................................. 59 

8. GLOSSARY ............................................................................................................................ 61 

9. REFERENCES ....................................................................................................................... 66 

ANNEX A – PROCEDURAL INFORMATION ...................................................................... 74 

1. Lead DG, Agenda Planning and Work Programme ............................................................................ 74 

2. Organisation and Timing ....................................................................................................................... 74 

3. Consultation of the Regulatory Scrutiny Board ................................................................................... 74 

4. External Expertise .................................................................................................................................. 74 

ANNEX B – STAKEHOLDER CONSULTATION ................................................................. 76 

1. Introduction ............................................................................................................................................ 76 

2. Breakdown of Participants .................................................................................................................... 76 

3. Analysis of responses .............................................................................................................................. 77 

ANNEX C - WHO IS AFFECTED BY THE INITIATIVE AND HOW ............................... 92 

ANNEX D - ESTIMATION OF DOUBLE TAXATION DISPUTES FOR CORPORATE 
TAXPAYERS .............................................................................................................................. 93 

1. Development of cases under the EU Arbitration Convention ............................................................. 93 

2. Estimation of cases addressed in the MAP under DTC (i.e. cases not falling under the AC) and 
total number of disputes ............................................................................................................................. 95 

3. Cases where no remedies are sought ..................................................................................................... 96 

ANNEX E - ESTIMATION OF AMOUNTS OF TAX INVOLVED IN DTDRM ................ 97 

1. Responses received from MS on amounts of tax involved in cases pending under the AC 
31.12.2014: ................................................................................................................................................... 97 

2. Estimation of amounts involved in cases pending under DTC ........................................................... 98 

ANNEX F: SHORTCOMINGS IDENTIFIED IN DETAIL AND FOR THE DTDRM IN 
THE EU .................................................................................................................................... 101 

A. Shortcomings identified for DTDRM in the EU in detail ................................................................. 101 

B. Shortcomings identified for DTDRM in the EU overview ................................................................ 106 

ANNEX G: VERVIEW OF CASES INITIATED UNDER THE AC VS. CASES 
COMPLETED PER MEMBER STATE ............................................................................... 107 

ANNEX H:  
TAXATION DISPUTE RESOLUTION MECHANISMS ................................................... 108 

ASSESSMENT OF DATA COLLECTION ON IMPROVING DOUBLE 

A. Information About You ....................................................................................................................... 108 

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B. Your Opinion ........................................................................................................................................ 109 

6. The Implications of Double Taxation Disputes on Your Worldwide Operations ........................... 124 

ANNEX I: CONSULTATION STRATEGY .......................................................................... 128 

A. Origin/Past Consultation ..................................................................................................................... 128 

B. Ongoing/Future Consultations ............................................................................................................ 128 

ANNEX J: UNCITRAL MODEL LAW ON COMMERCIAL ARBITRATION (2006) – 
EU28 - OVERVIEW ............................................................................................................... 131 

ANNEX K: IMPACT ON FUNDAMENTAL RIGHTS ....................................................... 132 

ANNEX L TEMPLATE FOR MONITORING ..................................................................... 133 

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1. INTRODUCTION, BACKGROUND 

It has been demonstrated as far back as 1923 that the imposition of comparable taxes by 
two (or more) tax jurisdictions in respect of the same taxable income or capital ('double 
taxation/multiple taxation') has a negative impact on cross-border investment and leads 
to economic distortions and inefficiencies1. As a consequence the League of Nations and 
later on other international organisations like the Organisation for Economic Cooperation 
and  Development  ('OECD')  and  the  United  Nations  ('UN')  have  been  working  on 
establishing  mitigating  measures  which  strike  the  right  balance  between  supporting 
undistorted cross-border economic activities and a country's right to levy taxes on profits 
from these activities.   

As  the  most  practical  solution,  models  for  bilateral  agreements  between  states  for  the 
avoidance  of  double  taxation  situations,  the  so  called  Double  Taxation  Conventions 
('DTC'),  have  been  developed.  There  is  now  a  long  history  of  such  DTCs  between 
numerous  jurisdictions  across  the  world.  Within  the  EU,  most  Member  States2  have 
concluded  a  DTC  with  each  other,  which  allocate  taxing  rights,  contain  approaches  on 
how to relieve double taxation when it occurs, and include procedures to resolve disputes 
created  by  the  existence  of  divergent  interpretation  of  the  respective  DTC  ('double 
taxation  disputes').  These  mechanisms  are  called  double  taxation  dispute  resolution 
mechanisms ('DTDRM'). 

2. POLICY CONTEXT, DRIVERS, PROBLEM DEFINITION AND SUBSIDIARITY 

2.1 Policy context 

The  context  described  below  is  expected  to  result  in  a  continuously  high  and  even 
increasing  number  of  situations  where  Member  States  exercise  their  taxing  rights  in  a 
way that can result in double taxation disputes.  

2.1.1 National tax sovereignty of EU Member States 

The EU Treaty freedoms allow individuals and businesses to move and operate freely in 
the  Internal  Market  without  discrimination.  At  the  same  time,  the  EU  Member  States 
have  the  right  to  exercise  their  sovereignty  in  direct  taxation.  As  a  result,  a  company 
operating  cross-border  may  find  itself  in  a  situation  where  different  Member  States 
decide  to  levy  taxes  on  the  same  income  or  capital.  This  situation  gives  rise  to  double 
taxation.  

Direct taxation  is  not  harmonised  in  the  EU  and  the  EU’s  role  in  the  area  is  limited  to 
certain  competences.  EU  Member  States  are  largely  free  to  design  their  direct  tax 
systems  and  procedures  and  to  decide  what  to  tax,  when  to  tax  it,  and  at  what  rate,  as 
long as their rules are not discriminatory or otherwise contrary to the EU Treaties.  The 
EU  Treaties  include  no  explicit  provision  for  EU  legislative  competence  in  the  area  of 
direct  taxation.  Under  Article  115  of  the  Treaty  on  the  Functioning  of  the  European 

1  

Jogarajan, S. Stamp, Seligman and the drafting of the 1923 Experts Report on Double Taxation, World 
tax journal Jogarajan et al. (2013) p.368-392 (2013) 

2   Out of 378 possible bilateral treaties, 370 have been concluded; 

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Union (TFEU)3, the Commission has the power to propose EU legislation to improve the 
functioning of the Internal Market, but the proposals will only become EU law subject to 
unanimous support in Council. On that basis, and in the context of the Capital Markets 
Union (CMU) Action Plan, the EU Commission has started mapping and discussing with 
EU  Member  States  on  the  best  ways  to  remove  restrictions  linked  to  the  existence  of 
burdensome withholding tax procedures.   

2.1.2 Double taxation and double taxation dispute resolution mechanisms 

The DTDRM provided in DTC is a State to State procedure to mutually agree on how to 
solve the double taxation dispute, usually in the form of Mutual Agreement Procedures 
('MAP').  

Under a 'classical' DTDRM the taxpayer can request the initiation of a DTDRM with the 
competent  authority (usually  a  special  unit  in  the  tax  administration  or  the  ministry)  of 
the Residence State within three years from the first notification of the action, which he 
considers  as  not  being  in  accordance  with  the  DTC.  The  competent  authorities  of  the 
States will then have to contact each other and negotiate how to solve the double taxation 
dispute. The taxpayer is not directly participating in this State to State procedure. Under 
DTCs including the 'classical' DTDRM, the States are not obliged to reach a solution and 
shall just endeavour to reach an agreement, which is a rather vague objective. Therefore 
it can happen, and it does happen in practice, that the States are not in a position to solve 
the double taxation dispute with the effect that the double taxation persists. 

Figure 2: A typical MAP common in classical DTCs (Commission services) 

The  problem  of  unresolved  double  taxation  disputes  is  widely  recognised.  In  2007  the 
OECD  issued  a  report  on  improving  the  resolution  of  tax  treaty  disputes.  It  concluded 
that it is inevitable that MAPs do not achieve a satisfactory result in cases where States 
cannot agree.4 To ensure a resolution of such  disputes, the 2008 revision of the OECD 
Model  Tax  Convention  introduced  an  arbitration  clause  for  cases  where  competent 
authorities  cannot  agree  in  the  context  of  a  MAP.  Such  a  clause  provides  that  if 
negotiations between the competent authorities do not result in a solution within a certain 
time  period  (usually  two  years),  an  independent  body  is  established  ('advisory 
commission') to issue a decision on how to solve the disputes which is binding for the 
States involved ('mandatory binding arbitration').   

In the EU, such a mandatory resolution by way of arbitration was already agreed in the 
1990s  on  the  basis  of  the  EU  Arbitration  Convention  ('EU  AC')  on  the  elimination  of 
double taxation in connection with the adjustment of profits of associated enterprises5, an 
area commonly referred to as transfer pricing. It provides that if no agreement is reached 

3   Official Journal of the European Union C 326/49, 26.10.2012 
4   OECD (2007) Report. Improving the Resolution of Tax Treaty Disputes  
5   See European Convention 90/436/EEC on the elimination of double taxation in connection with the 

adjustment of profits of associated enterprises: (1990, 90/436/EEC, "European Arbitration 
Convention").  

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between  the  competent  authorities  within  two  years  after  the  initiation  of  the  MAP 
procedure,  an  advisory  commission  should  be  established  by  the  States  within  six 
months6. The advisory commission  has  to  decide within six months how to  resolve the 
transfer pricing dispute.  

Figure 3:   The proecedure laid down in the EU Arbitration Convention (Commission 

services) 

Source: European Commission 

As with any tax assessments, a taxpayer has also the possibility to appeal before national 
courts.  However,  these  domestic  judicial  proceedings  do  not  aim  at  eliminating  double 
taxation.  Instead  they  rather  address  the  question  regarding  whether  domestic  law  has 
been correctly applied. In doing so, it may happen that the courts in both States involved 
confirm the correct application of domestic law with the effect that the double taxation 
situation  remains,  which  is  not  satisfactory  from  the  perspective  of  the  taxpayer.  An 
appeal in front of the Court of Justice of the European Union ('CJEU') would require an 
EU legislative instrument, one of the options assessed in this impact assessment.   

2.1.3 OECD BEPS project and Anti-Tax Avoidance Package ('ATAP') 

The  work  on  solving  double  taxation  disputes  should  be  seen  in  the  context  of  the 
OECD's work on the Base Erosion and Profit Shifting (BEPS) project. While this project 
predominantly  aims  at  closing  existing  loopholes  that  facilitate  avoidance  of  corporate 
taxes,  and  to  find  solutions  to  today's  tax  challenges,  including  those  linked  to  the 
expansion of the digital economy, it also contains an action on improving double taxation 
dispute  resolution  mechanism  (Action  14).  In  September  2013,  the  G20  Leaders 
approved the OECD Action Plan on BEPS comprising of 15 actions which were finally 
endorsed in October 20157. However, addressing aggressive tax planning structures and 
complex cross-border arrangements through domestic rules creates significant additional 
risk of double taxation if new rules are not implemented in a harmonised way8. 

At EU level, the Anti-Tax Avoidance Package (ATAP) was presented in January 20169. 
It ensures a coordinated implementation of BEPS measures in the EU but does not cover 

6   Code of Conduct on the implementation of the EU Arbitration Convention, COM 2009 472, Par- 7.2 

b)   

7   See OECD (2013), Action Plan on Base Erosion and Profit Shifting. OECD Publishing, Paris 
8   See Lang et al. IBFD 2016, Chapter 2.2 
9   Anti Tax Avoidance Package adopted by the Commission on 28 January 2016; 

http://ec.europa.eu/taxation_customs/taxation/company_tax/anti_tax_avoidance/index_en.htm 

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all  BEPS  Actions  (e.g.  transfer  pricing).  Improving  double  taxation  dispute  resolution 
mechanisms therefore complements the anti-tax-avoidance measures. There are Member 
States expectations to raise additional tax revenues resulting from the application of the 
BEPS  measures,10  11 particularly  for  the  transfer  pricing  cases12  where  the  statistics 
collected  by  the  EU  Joint  Transfer  Pricing  Forum  ('EU-JTPF')  a  Commission  expert 
group  advising  the  Commission  on  transfer  pricing  matters13  already  confirm  that  this 
area of taxation is sensitive to disputes14. The two combined can put further strain on the 
occurrence of double taxation. Improving dispute resolution mechanisms is therefore an 
integral component of the work on BEPS.  

2.1.4 The June 2015 Action Plan  

On 17 June 2015 the Commission presented an Action Plan to reform corporate taxation 
in the EU which sets out a series of initiatives to tackle tax avoidance, secure sustainable 
revenues  and  strengthen  the  Single  Market  for  businesses15.  In  order  to  create  greater 
certainty for companies, the Commission announced in this Action Plan that by 2016 it 
will propose improvements to the current DTDRM.  

2.1.5 The CCCTB  

The CCCTB is a single set of rules that companies operating within the EU could use to 
calculate their taxable profits. That way, each Member State can then tax the profits of 
the  companies  in  its  state  at  their  own  national  tax  rate  (just  like  today).  The 
Commission's June 2015 Action Plan sets out a staged approach for the implementation 
of  the  CCCTB.  In  practical  terms,  the  Commission  is  planning  to  table  two  new 
Proposals: the first instrument will lay down the provisions for a Common Corporate Tax 
Base  (CCTB)  whilst  the  second  will  add  the  elements  related  to  consolidation  (i.e. 
CCCTB). 16.  

It can be expected that by providing for a common and consolidated tax base for the EU 
companies,  instances  of  double  taxation  will  significantly  be  reduced.  Remaining 
differences  in  the  interpretation  of  provisions  in  the  Directive  would  be  subject  to  the 
jurisdiction  of  the  CJEU.  However,  the  first  step  (developing  a  set  a  rules  for  the 
determination of a common tax base) will not make tax disputes disappear and will not 
tackle  at  all  the  functioning  of  the  DTDRM.  That  is  because  even  with  a  common  tax 
base the possibility of differences between States on the allocation of taxing rights under 
their domestic law and DTC, e.g. a transfer pricing dispute, will not disappear until the 
second step is taken.   

10   see e.g. for France: http://www.economie.gouv.fr/2015-annee-record-pour-le-controle-fiscal 
 http://www.gouvernement.fr/argumentaire/2015-annee-record-pour-le-controle-fiscal-3956  

11   see Martens J. (2015)  
12   see Allen & Overy (2014) 
13   see yearly statistics on pending cases under the Arbitration Convention, 

http://ec.europa.eu/taxation_customs/taxation/company_tax/transfer_pricing/forum/index_en.htm  

14   see e.g. JTPF Report on Transfer Pricing Risk Management (2013), paragraph 16  
15   European Commission (2015). Action Plan for a Fair and Efficient Corporate Tax System in the EU 

16  

https://ec.europa.eu/priorities/sites/beta-political/files/com_2015_302_en.pdf 
for the CCCTB proposal see  
http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/index_en.htm  

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In addition, the full CCCTB is suggested to mandatorily apply only to large multinational 
groups17.  For  groups  below  the  threshold  the  CCCTB  would  not  be  mandatory.  Their 
position in case of a cross-border double taxation dispute would remain unchanged.  

For  this  reason  the  initiative  on  improving  double  taxation  dispute  resolution 
mechanisms rather supplements the CCCTB for situations where it does not (yet) apply. 
For those businesses and periods where the CCCTB does not apply the initiative has the 
same  goal:  improving  the  business  environment  in  the  Single  Market  by  making  it 
simpler and cheaper for companies to operate cross border.     

2.2 Scope of this impact assessment  

This  impact  assessment  examines  the  possible  measures  to  provide  more  efficient  and 
better functioning DTDRMs.  

Which taxpayers are affected by shortcomings of DTDRM 

The results of the public consultation conducted in 2010 demonstrated that 94 % of the 
corporate  taxpayers,  which  participated  in  this  consultation,  indicated  that  they  had 
encountered  a  double  taxation  dispute  as  regards  their  business  income18.  In  the  2010 
public consultation 30% of double taxation cases were reported by individuals (58 cases) 
of which 69% sought remedies. The mutual agreement procedure was invoked in only 7 
of these cases. In 2013 the Commission set up an Expert Group to evaluate the issue of 
double taxation for individuals. The Group concluded its work in November 2015 with 
the adoption of a report19 with recommendations for the main areas of concern, i.e. cross 
border workers, characterisation mismatches. The most relevant recommendations in this 
report  are  to  develop  a  multilateral  tax  treaty,  to  recommend  common  approaches  and 
processes in the EU, to harmonise forms and procedures within the EU and, as only one 
aspect,  an  amendment  of  current  rules  for  mutual  agreement  procedures  which  would 
also  allow  mediation  procedures  to  better  address  the  problems  encountered  by 
individuals.  From  87  respondents  to  the  public  consultation  in  2016,  10  were  from 
private  individuals.  However,  from  the  10  individuals  who  responded  only  2  could  be 
considered  as  being  private  individuals/sole  traders  while  the  rest  were  consultants  (2), 
academics (2), or  were  responding on behalf of  their companies (2). The fact that only 
corporate  taxpayers  responded  to  the  2016  data  collection  can  be  taken  as  a  further 
indication  that  corporate  taxpayers  are  predominantly  subject  to  double  taxation 
disputes.20  

Why focussing on business profits of corporations and not on individuals? 

17  

the CCCTB proposal foresees mandatory application for a company belonging to a consolidated group 
with a total consolidated group revenue that exceeds EUR 750 000 000 

18   European  Commission  (2011).  Summary  Report  of  the  Responses  Received  to  the  Commission's 
Consultation  on  Double  Taxation  Conventions  and  the  Internal  Market  See  section  "Main 
Conclusions" - Annex A 

19   European  Commission  (2015):  Expert Group  Reports  on  "Ways  to  tackle  cross-border  tax  obstacles 
facing  individuals  within  the  EU"  and  "Ways to  tackle  inheritance  cross-border  tax  obstacles  facing 
individuals within the EU" 
Ibidem - All 27 respondents to the 2016 data collection were companies/organisations none of them 
was a private entrepreneur. 21 respondents did encounter double taxation within the EU, 5 did not and 
1 respondent did not provide an answer;   

20  

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The main problems with the existing DTDRM are encountered by companies. In this area 
there  are  currently  various  efforts  at  MS  and  international  level  to  ensure  taxation  of 
companies' cross border activities. This adds to the fact that disputes already arise mainly 
from the application of the current company targeted rules like transfer pricing. 

Theoretically individuals may also face double taxation issues as regards other kinds of 
income (e.g. employment income). Although it was confirmed by the Expert Group that 
double  taxation  disputes  arise,  it  was  not  possible  to  find  tangible  and  quantitative 
evidence  on  whether  the  existing  DTDRM  are  problematic  and  have  shortcomings  for 
other kinds of income than business income.  

Therefore, the other recommendations of the Expert Group, for example the development 
of  EU  wide  conflict  rules,  recommendations  and  procedures  are  expected  to  be  more 
proportionate  for  addressing  the  double  taxation  issues  encountered  for  individuals  and 
should be addressed with priority. This is confirmed by the 2016 stakeholder consultation 
in  which  only  a  proposal  providing  for  the  harmonisation  of  conflict  rules  was  seen  as 
fully appropriate to address the issue.  

On the other  hand  there is  the political  and economic urgency of adopting measures in 
the  field  of  business  profits  of  corporations.  Given  the  stronger  evidence  of  the 
magnitude  and  the  consequences  of  the  problems  with  ineffective  DTDRMs  in  the 
corporate area, this initiative focusses on corporate taxation of business profits.  

However, nothing prohibits the extension of the rules developed under this initiative to 
issues  encountered  to  the  cross  border  tax  obstacles  of  individuals  as  identified  by  the 
Expert  Group  once  the  magnitude  and  the  extent  of  the  problem  as  well  as  the 
proportionality can be established. 

Why not cover inheritance tax? 

Attempts have been made by the Commission in the context of the study on inheritance 
taxation21  to  establish  the  magnitude  and  extent  of  the  problem  for  inheritance  tax  but 
only anecdotal data was gathered to support the potential call for action in this area. As 
far  as  the  discrimination  problem  is  concerned,  the  study  concluded  that  a  number  of 
discrimination elements have been eliminated from certain Member States' jurisdictions 
and  new  case  law  by  the  CJEU  was  developed.  Despite  the  need  for  progress  and  a 
potential for double taxation persisting, the impacts of the remaining discrimination from 
the  inheritance  taxation  rules  did  not  seem  to  cause  a  significant  impact  on  the 
functioning of the single market as a whole. Moreover, the study concluded that, as far 
the data would permit, that the situation has neither worsened nor improved over the last 
decade.  Some  Member  States  have  in  fact  eliminated  inheritance  taxation  altogether 
thereby reducing the potential for double taxation.  

In  general,  the  Member  States  did  not  conclude  as  many  bilateral  conventions  on 
inheritance taxation as in corporate taxation. Consequently a commonly accepted set of 
rules for allocating taxing rights/removing double taxation ('conflict rules') is missing. To 
address  this,  many  Member  States  grant  unilateral  relief  for  double  taxation  which  is 

21   European Commission (2010-2011): "Study on inheritance taxes in the EU Member States and 

possible mechanisms to resolve problems of double inheritance taxation in the EU" 

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effective  in  many  cases.  The  starting  point  for  double  taxation  disputes  for  inheritance 
tax where the size of the problem and the effect of various recommendations has not yet 
been assessed is different to that for business taxation where the EU can review a longer 
history  of  recommendations,  compile  a  detailed  assessment  of  the  number  and  kind  of 
cases, and has implemented increasing measures to ensure taxation.    

Why not cover VAT? 

When it comes to indirect taxation (notably the VAT) double taxation risks can exist and 
trigger consequences for the single market. The public consultations and  previous work 
conducted by the Commission in the VAT area have led it to consider and consult on a 
VAT-specific  mechanism  for  eliminating  double  imposition  of  VAT  in  individual 
cases22,  including  an  arbitration  procedure.  The  Commission  will  facilitate  this  process 
by running or sponsoring concrete projects in the future23. 

However, the present impact assessment does not cover double imposition of VAT issues 
for the following reasons: 

 

 

situations  and  causes  creating  double  imposition  of  VAT  are  radically  different 
from  the  ones  triggering  double  taxation  in  the  income  tax  area.  They  relate  to 
characterising or interpreting the place of supply of goods and services24; 

the legal framework significantly differs and has an impact on how to envisage an 
effective  dispute  resolution  mechanism.  Indeed,  the  mechanism  and  the 
underlying  procedure  would  require  to  be  enshrined  in  the  existing  VAT  legal 
framework. There would be a need to provide for specific provisions in order to 
exclude situations related to different interpretations for which prevailing power 
would  be  with  the  VAT  Committee  established  under  Article  398  of  the  VAT 
Directive and the CJEU25. Furthermore, in the VAT area, there are no provisions 
for the elimination of double taxation similar to a DTC in the field of direct tax 26 
for cases which do not relate to the interpretation of the VAT Directive; 

22   European Commission, Consultation paper: Introduction of a mechanism for eliminating double 

imposition of VAT in individual cases, and Report on the outcome of the consultation; [is the marked 
part correct with these "…"???] 

23   European Commission, Action plan on VAT (2016), COM (2016) 148 final.  
24   Situations at stake relate to (i) differing interpretations of what constitutes a taxable supply, (ii) 

differing interpretations of the rules concerning the place of supply in the Member States as well as 
(iii) differing views on the circumstances in an individual case and the legal situation between the 
parties – See above-mentioned Consultation paper page 2-3 and above-mentioned report pages 1-2 
25   See the above-mentioned  Consultation paper (footnote 11) page 3 and also point 5.1.2 on page 8, 

underlining the "risk of duplication and contradictory decisions" otherwise based on Article 398 (VAT 
Committee competence), Article 397 (Council) and Articles 226 or 234 (CJEU) 

26   See the above-mentioned consultation paper (footnote 11) page 4 

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Figure 1: Intervention logic 

 

the  report  issued  by  the  Commission  further  to  the  2007  Consultation  showed 
little  evidence  on  the  materiality  and  magnitude  of  existing  VAT  double 

12 

 
 
 
 
imposition  issues  which  may  be  referred  to  such  mechanism  (i.e.  not  involving 
interpretation of a provision of the EU VAT legislation). 

Given  the  above-described  characteristics  and  particularities,  developing  a  combined 
effective  and  efficient  mechanism  for  both  VAT  and  direct  tax  does  not  appear  to  be 
feasible. If proven relevant, a specific approach for the area of VAT should be explored 
and assessed. 

2.3 Drivers 

2.3.1 Globalisation and changing business models (External driver)   

For  companies  that  are  highly  integrated  internationally  as  it  is  the  case  in  most  EU 
Member  States,  activities  are  not  limited  to  one  jurisdiction  only.  Current  business 
models  used  by  multinational  companies  have  become  more  complex,  intra-group 
transactions  have  multiplied27,  and  multinationals'  integrated  value  chains  make  it 
increasingly  difficult  to  determine  where  profits  are  created.  These  aspects  have  an 
impact on taxation. For example, while between the associated enterprises within a MNE 
group,  the  (re-)location  of  intangible  assets  is  easier  than  for  tangible  assets  (e.g. 
machinery,  factories),  estimating  their  true  economic  values  and  the  real  values  of 
payments  for  their  use  is  very  complicated  in  practice.  Sometimes  pricing  is  even 
impossible given the lack of similar transactions occurring between third parties to which 
these intra group transactions can be compared.     

It  is  not  only  the  rise  in  economic  integration  and  the  increase  of  capital  flows  which 
causes conflicting situations of double taxation. Also the complexity of business models 
and the new features they incorporate (like the presence of the digital economy) are not 
aligned  with  the  current  international  taxation  standards  often  agreed  a  long  time  ago. 
Therefore  mechanisms  which  properly  solve  double  taxation  disputes  that  may  arise 
because of that are required. 

2.3.2 Priority for tax collection vs. solving double taxation disputes (Internal driver) 

States  need  to  safeguard  taxation  and  collection  of  tax  on  cross-border  transactions 
especially  at  a  time  where  there  is  a  multiplication  of  financial,  trade  and  investment 
flows  combined  with  full  integration  of  business  models  by  companies.  Securing  tax 
revenue  in  cross-border  situations  through  stricter  taxation  rules  as  well  as  tougher  tax 
collection  and  audit  practices  on  cross-border  transactions is  the  immediate  priority  for 
Member States. This is reinforced by the fact that taxpayers play with loopholes of the 
existing rules and set up schemes which need to be immediately addressed and taxed in 
cross border situations (see BEPS project).  

27   For illustration: Data on intra-group transactions are available for the inward multinational companies' 
activity in Italy (the activity of foreign-owned affiliates in Italy) at the OECD Activities of Foreign 
Affiliates (AFA) Database. According to the AFA Database, in 2008 intra-group exports of the 
manufacturing sector accounted for 44.57 percent of total exports of such sector (EUR 29 770 million 
of intra-group exports out of EUR 66 785 million of total exports), and in 2013 they accounted for 
40.94 percent (EUR 34 302 million of intra-group exports out of EUR 83 772 million of total exports). 
And regarding imports, meanwhile in 2008 intra-group imports of the manufacturing sector accounted 
for 50.94 percent of total imports of such sector (EUR 29 970 million vs. EUR 58 823 millions), in 
2013 these intra-group imports rose and accounted for 58.50 percent (EUR 43 153 million vs. EUR 
73 764 millions). 

13 

 
 
                                                 
The increased focus on safeguarding taxation in cross border situations can conflict with 
other  States’  sovereignty  which  then  may  create  double  taxation  and  disputes  between 
States  on  how  to  remove  them.  In  the  long  term,  unresolved  double  taxation  has 
detrimental  effects  on  growth  and  investment  (a  long  established  fact,  see  above)  but 
these negative effects are not immediately visible. The impact assessment shows that the 
current  DTDRM  have  some  elements  which  do  not  work  well,  make  them  resource-
intensive  for  the  States,  and  don’t  have  enough  guarantees  of  success  (long,  costly, 
ineffective,  resource-intensive  procedures).  The  impression  is  that  there  is  a  greater 
interest  in  collecting  taxes  than  solving  a  double  taxation  dispute.  This  is  assumed  to 
drive the problems encountered with the current DTDRM.   

2.4 The problems identified 

2.4.1 Double taxation disputes  

a) General 

Nearly every cross border business transaction is at risk of causing double taxation due to 
the fact that the State where the taxpayer is resident usually taxes the world wide income 
and the State where the company generates business income taxes the income generated 
in  its  territory.  The  DTC  concluded  between  States  ensure  that  in  the  overwhelming 
majority  of those cross border  business transactions a double taxation conflict does not 
arise (first layer: The Double Taxation Convention).  

Nevertheless, in some instances a double taxation conflict arises despite such a DTC, e.g. 
in a situation where States interpret the DTC concluded differently. For these cases it is 
important that there is a possibility that allows MS to get in touch and encourages them 
to  solve  the  double  taxation  dispute.  Nearly  all  DTCs  actually  provide  for  such  a 
possibility  (Second  layer:  DTC  providing  for  a  classical  Mutual  Agreement  Procedure, 
MAP).  

As a classical Mutual Agreement Procedure only provides that States endeavour to reach 
an agreement, it is important to have an agreement between the States that obliges them 
to  reach  an  agreement.  Mandatory  binding  arbitration  is  seen  as  the  strongest  tool  that 
achieves this (third layer: mandatory binding arbitration). 

The situation in the EU is characterised by the fact that with the EU AC a large majority 
of  double  taxation  disputes  are  covered  by  a  dispute  resolution  mechanism  which 
requires mandatory binding arbitration. It is widely recognised that the EU AC provides 
significant  improvement  compared  to  situations  where  there  is  only  a  classical  MAP. 
Furthermore, the simple fact of such an arbitration clause gives an incentive to States to 
solve the disputes before it goes to arbitration. The fact that only a few cases under the 
AC  finally  went  to  arbitration  should  therefore  be  seen  as  confirmation  of  this 
assumption rather than as a failure of the EU AC.  

It  is  not  possible  to  reliably  establish  how  the  situation  would  have  been  without  the 
existence of the EU AC, i.e. to  quantify for instance the number of cases which would 
not be solved and their duration. However, the fact that the OECD and the UN both aim 
at implementing mandatory binding arbitration on a broader level confirms the positive 
impact of the EU AC.  

14 

 
 
In  addition  it  needs  to  be  stressed  that  there  are  clear  indications  that  the  problem  is 
growing in size and magnitude due to several factors: globalisation and increased audit 
practices of tax administrations.  

This effect is not limited to the EU but rather observed worldwide. It is therefore the right 
time  to  act  before  the  risks  encountered  actually  materialise  in  the  EU.  The  current 
mechanisms (EU Arbitration  Convention 1990/463/EEU and bilateral tax treaties) need 
to be strengthened through a common framework to address these developments at least 
at EU level.  

Given MS' sovereignty for  their bilateral relations  with third countries the problem can 
only  be  addressed  at  EU  level  for  MS  intra  EU  relations.  However,  well-functioning 
DTDRMs  within  the  EU  are  expected  to  have  positive  effects  also  in  relation  to  third 
countries, especially in multilateral situations where part of the stakeholders are resident 
in the EU. 

Although it is commonly recognised that the EU AC clearly improves the situation 
compared to a situation without mandatory binding arbitration, stakeholders criticise that 
the EU AC does not work to its full extent and is only applicable to disputes on transfer 
pricing and attribution of profits to permanent establishments. This criticism gave rise to 
the comprehensive monitoring of DTDRM in the EU, finally resulting in this initiative.  

b) Estimation of the number of double taxation disputes by the end of 2014 

Over  recent  years  international  organisations  and  the  European  Commission  monitored 
developments  related  to  double  taxation  dispute  resolution.  On  this  basis,  the 
Commission  took  various  actions  to  (i)  estimate  the  magnitude  and  impacts  of  the 
problems, and (ii) to develop possible solutions.  

At the end of 2014 there is an estimated number of around 910 cases of double taxation 
disputes  pending  under  the  EU  AC  (transfer-pricing  disputes)  and  DTCs  (non-transfer 
pricing disputes) within the EU28. This conservatively calculated number is estimated to 
represent  at  minimum  around  50%  of  Member  States'  total  double  taxation  disputes 
worldwide.  

The 2016 data collection29 indicated that  remedies before domestic courts are  regularly 
sought in parallel to remedies available under the EU AC or DTC. There is some reason 
to believe that every year in a number of cases no remedies are taken by taxpayers which 
are  subject  to  double  taxation  (this  number  is  conservatively  estimated  at  around  120 
cases  in  2014).  Based  on  the  data  available,  the  input  received  from  stakeholders  and 
views expressed in various articles, the number of double taxation disputes is expected to 
increase in the future.30 31  

The statistics on double taxation disputes at OECD level show that the problem is  also 
emerging at a global level. The inventory of cases at the level of OECD Member States 

28   see Annex E for background calculations 
29   see Annex C  
30   see e.g. articles quoted in Chapter 2.2. note 20, in. Lang et al. (2016), and, in particular ICC, ICC 

warns enhanced tax dispute resolution mechanism needed to prevent exacerbating double taxation, 
Paris, 4 Nov. 2014 

31   See section 5.3 of 2016 data collection, Annex C  

15 

 
 
                                                 
more than doubled from 1176 bilateral cases at the end of 2006 to 2711 bilateral cases at 
the end of 2014.  

c) Estimation of the amounts involved in double taxation disputes by the end of 2014 

The  total  amount  of  tax  disputed  involved  in  the  cases  pending  at  the  end  of  2014  is 
estimated at 8 billion Euro in the area of transfer pricing and at 2.5 billion Euro for other 
cases, a total of EUR 10.5 billion by the end of 2014, of which there is a quarter where 
the  taxpayer  did  not  seek  the  remedies.32  Putting  the  estimated  number  of  EUR  10.5 
billion Euros in relation to the total corporate income tax levied in the EU for the year 
2014 (EUR 351 billion)33 would result in a percentage of 3%. In this context, however, it 
needs to be recalled that the amount for a company affected by a double taxation dispute 
can be significant. 

Figure 4: Estimation based on 2014 figures for illustration only 

Source:   European Commission 
Notes: 

*) The number of 1821 cases is calculated as the number of cases reported by EU MS to the OECD MAP Statistics 2014 
divided by 2 for arriving at the number of bilateral cases. There is a certain degree of uncertainty due to the fact that it is 
not  clear  from  the  statistics  whether  cases  pending  under  the  EU  Arbitration  Convention  are  included  in  the  numbers 
reported by MS or not.   

d) The spread of the problem within EU MS 

As regards the spread of cases between Member States the statistics on cases under the 
EU  AC  show  in  absolute  numbers  a  higher  number  of  cases  for  MS  with  a  bigger 
economy  than  for  smaller  economies.  However,  some  MS  manage  to  keep  a  relatively 
low inventory of pending cases despite the size of their economy (while for other MS it is 
relatively high). 

32   See Annex F for the estimation and the assumptions made; 
33   Source: Eurostat and DG Taxation and Customs Union  

16 

 
 
 
                                                 
Figure 5: cases under the EU Arbitration Convention per MS  

Source: European Commission 

e) Taxpayers affected by double taxation disputes 

The  problem  of  a  double  taxation  dispute  is  directly  linked  to  cross-border  business 
activity,  i.e.  it  is  not  limited  to  certain  industries  nor  is  it  dependent  on  the  size  of 
company  acting  cross  border  (e.g.  SME  or  MNE).  Therefore,  all  business  sectors  and 
businesses  are  affected  by  the  problem  depending  on  the  degree  of  their  cross  border 
activity. However, the data available allows only assessing the problem at MS level but 
not between industries or kinds of taxpayers.  

The comments received in the 2010 and 2016 public consultations and the input received 
from  stakeholders  confirm  that  when  acting  cross  border,  SME's  are  in  the  same  way 
affected. However, there are no figures available on the exact number of double taxation 
cases or the amounts involved for SMEs. There is more cross border trade of MNEs in 
absolute  numbers  but  we  also  know  –  and  the  EU  actually  promotes  –  that  SMEs  take 
advantage  of  the  single  market.  Given  that  a  double  taxation  dispute  causes  a  certain 
amount of fixed costs (see section on inefficient procedures below) and assuming that the 
amounts of double taxation involved for SMEs are expected to be lower. Therefore one 
can assume that the initiative would be especially beneficial to SMEs.  

2.4.2. The problems of DTDRM in the EU  

The problems of DTDRM in the EU were identified based on the monitoring of the EU 
AC, empirical evidence from statistics on cases under the EU AC as the most developed 
DTDRM  in  the  EU34,  and  by  the  2016  public  consultation  conducted  by  the  European 
Commission. 

The following table illustrates the aspects of the EU AC which have been identified as 
causing issues: 

34   See e.g. statistics on cases pending under the EU Arbitration Convention 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/foru
m/jtpf0082015acstatistics2014.pdf  

17 

 
 
 
 
                                                 
Figure 6: Aspects identified in the EU AC which do not work well 

Procedural 
phase 
laid  down  in  the  EU 
Arbitration 
Convention  

Mutual Agreement 
Procedure (First 
stage of the procedure 
during which Member 
States shall endeavour 
to settle the dispute 
and eliminate double 
taxation on an 
amicable basis)  
Arbitration 
Procedure (Second 
stage of the procedure 
during which Member 
States shall set up an 
advisory commission 
to give an opinion on 
how to solve the 
dispute which then 
will have to be 
implemented by 
Member States) 

Identified weaknesses of the EU AC 

Potential 
consequence 

- lack of clarity on terms and conditions 
under which the complaint filed by the 
taxpayer to launch the procedure can be 
considered as 'well-founded' 
- terms and conditions as well as 

Can result in: 
- unjustified denial 

of access 

- blocked 

procedures 

formalisation of the acceptance or 
rejection of the complaints are not 
explicitly provided  

- limitation of scope to transfer pricing 
-Absence of enforcement mechanism or 
default appointment mechanism in the 
following cases: 

Can result in: 
- blocked 

procedures 

- delay in or absence of establishing the 

- delayed 

procedures 
- non conclusive 

decisions 

- unnecessary costs 
and compliance 
burden 

advisory commission 

- one or 2 Member States failing to 

appoint an independent person member 
in the advisory commission 

- Non agreement on the appointment of 
the Chair of the Advisory Commission 

- Non implementation of the final 

arbitration decision 

other issues: 
- Absence of provisions detailing the 

secretarial, administrative and internal 
rules of functioning of the advisory 
commission (eg working languages, 
calendar, hearings, etc) 

- Limited provisions related to the 

contents and form of the opinion of the 
Advisory Commission 

- Limited provisions on costs and 

management of costs of the procedure 

Scholars and practitioners identified similar problems for DTC in general35, i.e. MAP is 
time consuming (and thus expensive), with cases lasting often two years but also much 
longer36.  In  some  instances  it  gives  no  guarantee  of  resolution  of  the  double  taxation 
dispute, adding to uncertainty and consequently in distorted economic decisions.  

The  global  political  and  economic  circumstances  described  above,  which  can  lead  to 
possible  instances  of  double  taxation,  are  considered  to  be  beyond  the  scope  of  EU 

35   Madere ( 1975)., pp. 108-124,  confirmed by the responses received on the 2016 data collection 

(section 2.6) Annex E 

36   Altman ( 2005.) IBFD Chap.2; 

18 

 
 
 
 
                                                 
legislation. Therefore, in addition to encouraging Member States to reduce the cases of 
double  taxation,  for  instance  by  improving  the  existing  burdensome  withholding  tax 
procedures,  a  future  initiative  should  focus  on  making  sure  that  there  are  effective 
DTDRMs in place.  

The shortcomings and problems encountered with the current DTDRMs can be clustered 
under three main categories: (i) lack of enforceability, (ii) inefficient procedures, and (iii) 
instances where there is no mandatory binding dispute resolution.37 

2.4.2.1 Lack of enforceability 

There are three main issues identified with relation to enforceability of the existing 
DTDRMs:  

a)  Taxpayers do not request for a DTDRM and accept double taxation ('Implicit denial 

of Access') 

The taxpayers stressed the instances where they were effectively deprived from invoking 
an applicable procedure38 ('implicit denial'). The drivers of such situation are essentially 
two-fold.  According  to  the  opinions  of  stakeholders  (businesses,  tax  consultancies,  tax 
and commerce institutes notably) which took part in the OECD's discussion on the BEPS 
Action 14, there is a generalised perception that tax administrations are not motivated to 
resolve double taxation disputes39. Instead, they offer the taxpayers settlements, in which 
they  propose  tax  adjustments  under  the  condition  that  no  DTDRM  is  sought.  In  the 
absence  of  data  from  the  Member  States  administrations,  we  can  consider  that  the 
reasons triggering such behaviour could include: (a) the intention to avoid administrative 
costs (e.g. translations, coordination of actions between the administrations of the States 
involved, sheer length and complexity of the case requiring allocated resources, etc.), (b) 
reputational risks resulting from obligations to report open cases combined with expected 
negative impact on the tax environment40.  

On the taxpayer's side, it has been noted that they consider accepting double taxation as 
less costly and less burdensome compared to engaging in a DTDRM. Some companies 
reported  having  a  preference  for  accepting  double  taxation  rather  than  spending  even 
more money and many more years trying to avoid it. The costs and burdens arising are 
described in detail under the consequences in the next section. 

Following  the  2016  data  collection,  in  the  30%  of  double  taxation  cases  where  no 
remedies were taken, these two drivers were mentioned in 60% and 50% of the cases as 
at least one of reasons. The right of claiming for remedies should apply irrespective from 

37   See Annex F for a more detailed overview and an estimate of the size of the respective problems 

encountered;  

38   See e.g. comments from Non-Governmental Members of the EU Joint Transfer Pricing Forum 

JTPF/020/2012/EN, p. 7-9 particularly page 7 (access into the AC), page 9 (exclusion of access to the 
AC based on different arguments and denying access to the AC in the case of perceived abusive 
situations), page 14 (Article 8 AC: Practice/monitoring observations), page 16 No access to MAP, the 
corresponding situations being assessed between 4 and 5 on a scale of 1-5 in terms of detrimental 
impact 

39   OECD BEPS Action 14 – Public Discussion contributions; 
40   European Commission (2013). Discussion paper on ways to improve the functioning of the AC, 

JTPF/002/2013/EN; 

19 

 
 
                                                 
whether the claim is finally justified or not and the question of whether there is a legal 
justification for an implicit denial of access or is not relevant.  

b)  Cases  are  not  accepted  by  Member  States  under  available  dispute  resolution 

procedures ('Explicit denial of Access');  

Taxpayers  report  that  in  a  number  of  cases  access  to  a  dispute  resolution  procedure  is 
denied by tax administrations, i.e. a request for initiating a DTDRM is refused ('explicit 
denial  of  access').  In  2014  MS  reported  that  access  to  the  EU  Arbitration  Convention 
was explicitly denied in 14 cases41. Roughly extrapolated to the total number of double 
taxation disputes for corporations, there would be 25 instances with an explicit denial of 
access in 2014.  

It  is  not  possible  to  assess  and  affirm  whether  the  reasons  presented  by  the  tax 
administrations for denying access were valid, correct and duly justified42. Therefore it is 
not  the  denial  of  access  itself  which  is  considered  to  be  problematic  but  rather  the  fact 
that access to DTDRM may be denied in cases where it would not be justified and thus 
creates a situation of legal uncertainty. However, the underlying issue remains the same – 
there is  the risk  that  in  justified  cases  the  double  taxation  burden  is  not  lifted  from  the 
taxpayer's shoulders and the enforceability of theoretically available remedies is limited. 

c)  Cases  are  blocked  or  delayed  within  the  applicable  procedure  ('Blocked/Delayed 

Procedure'),  

At  the  outset  it  should  be  recalled  that  in  cases  where  the  available  DTDRM  does  not 
provide for timelines in which the dispute shall be solved or does not require a mandatory 
resolution  of  the  cases  at  all,  there  is  no  breach  of  timelines.  However,  in  these 
circumstances the issue would rather be an inappropriate duration up to a non-resolution 
of the case, i.e. the situation would be worse.  

For instances where there are fixed timelines for a resolution of a double taxation dispute 
like in cases under the EU AC, it was identified that in a significant number of cases the 
timelines are not followed; the procedure is either blocked or delayed and the resolution, 
if any, takes much longer than provided for. 

41   See EU Joint Transfer Pricing Forum, Statistics on Pending MAPs under the EU Arbitration 

Convention at the end of 2014  

42   Reasons justifying an explicit denial of access  range from non-applicability of the remedy requested, 
non-sufficient information submitted by the taxpayer, falling under a condition for exclusion, e.g. 
serious penalties as a reason for not applying the EU AC 

20 

 
 
 
                                                 
Figure 7: Number of cases under the EU AC pending more than 2 years  

Source:   European Commission 

Figure 8: Duration of cases under the EU AC pending more than 2 years 

Source: European Commission 

A blockage or delay may occur at several steps of the process, starting with the risk that a 
long time period passes until a procedure is finally initiated by the Member States up to 
the moment of resolution. The stakeholders report a long lead-time before a conclusion is 
reached,  even  in  cases  where  a  particular  DTDRM  requires  a  mandatory  resolution 
within a certain timeline. The long duration, the non-conclusiveness of DTDRM and the 
absence of clear timelines to be followed under a DTDRM are encountered as a crucial 
shortcoming calling for clearer rules and more stringent timelines43.  

As taxpayers are not a party to a dispute, they are confined to merely follow the actions 
between  competent  tax  administrations.  However,  the  latter  are  accused  as  being  more 
committed  to  combatting  tax  avoidance  rather  than  the  avoidance  of  double  taxation. 
That results in a low commitment to endeavour to remove double taxation, to the point of 

43   See e.g. recommendation C9 of the Draft Report of European Parliament – Committee of Economic 

and Monetary Affairs (2015), Rapporteurs Anneliese Dodds, Luděk Niedermayer 

21 

 
 
 
 
 
 
                                                 
refusing  to  take  part  in  the  resolution  dispute  mechanism44.  The  EU  Arbitration 
Convention  and  most  of  the  few  (14  out  of  370  bilateral  treaties)  DTCs  with  an 
arbitration  clause  requiring  a  resolution  of  the  dispute  within  three  years  from  the 
initiation.  The  overall  real  lead-time  until  these  cases  are  concluded  varies.  While  the 
majority  of  these  cases  seem  to  be  concluded  within  three  to  four  years  from  the 
initiation, some cases are taking considerably longer to resolve to an extent that it seems 
they  might  never  be  resolved.  Often  it  remains  open  whether  such  a  delay  is  always 
legitimate, creating a lack of legal certainty of the DTDRM currently in place.  

2.4.2.2 Inefficient procedures  

The 2010 publication, the 2016 data collection and especially the work done at the level 
of the EU JTPF have identified two main issues regarding efficiency and economy of the 
existing DTDRM:  

a)  High  complexity  of  procedures  and  compliance  burden  ('Complexity  and 

Compliance') 

Taxpayers  report  that  they  regard  the  current  DTDRM  as  complex  and  creating  a 
significant  compliance burden which is  not  balanced with the actual results that can be 
expected45. In practice it is also observed, for example. in transfer pricing for taxpayers' 
planning, implementation  and documentation  are occurring in  a shorter amount  of  time 
while the time spent on controversy and dispute resolution is expanding46.  

The  efforts  taken  are  measured  against  the  benefit  to  be  expected.  As  regards  the 
DTDRM currently available, these efforts are measured against a procedure which does 
involve  a  risk  of  complete  or  partial  non-success  and  even  if  successful,  having  a 
duration  which  exceeds  what  is  considered  appropriate47.  These  risks  are  further 
exacerbated by the fact that the taxpayer takes no part in the dispute process and has no 
influence on how his case advances.  

However,  it  needs  to  be  stressed  that  the  efforts  and  compliance  requirements  are  not 
solely  associated  with  the  design  of  the  DTDRM  itself  but  may  also  be  a  result  of  the 
complexity  of  tax  matters,  language  barriers,  as  well  as  different  legal  and  accounting 
rules in place in different Member States.   

b) Non- homogenous uptake of DTDRM ('Non Homogenous Uptake') 

The  problem  of  non-homogenous  uptake  of  DTDRM  in  the  EU  is  two-folded,  i.e.  it 
relates  to  the  differences  between  the  DTDRM  available  and  in  the  way  an  identical 
DTDRM are actually applied.    

44   OECD BEPS Action 14 – Public Discussion contributions, p. 46; 
45   See e.g. section 2.6 of the 2016 data collection, Annex H  
46   Ernst & Young (2013) Navigating the choppy waters of international tax. 2013 Global Transfer 

Pricing Survey, page 13.  

47   See Commission Staff Working Paper, supra Commission of the European Communities, Commission 
Staff Working Paper: Company Taxation in the Internal Market, SEC(2001)1681,at 267 (23 October 
2001), at 276 (one of the main objectives of the European Arbitration Convention was to provide 
timely decisions). 

22 

 
 
 
                                                 
There  are  bilateral  double  taxation  disputes  within  the  EU  which  are  covered  by 
mandatory  binding  arbitration  (either  the  EU  AC  or  a  DTC  with  arbitration)  and  for 
which  Member  States  shall  only  endeavour  to  reach  an  agreement.  On  the  other  hand, 
there are very few situations where there is no dispute resolution mechanism at all. In the 
EU  only  8  out  of  378  bilateral  relations  between  Member  States  are  not  covered  by  a 
DTC.48 For double taxation disputes on transfer pricing the EU AC applies.  

Furthermore,  the  statistics  available  for  the  EU  AC  show  how  an  identical  DTDRM  is 
applied with different success in Member States. While some Member States manage to 
keep their inventory (i.e. number of active cases) stable and at a relatively low level over 
the  years,  for  other  Member  States  a  continuous  mismatch  between  cases  initiated  and 
cases  solved  is  encountered49  resulting  in  an  increasing  inventory  of  cases.  Given  the 
bilateral nature of DTDRM this means that even if one MS has established a framework 
allowing an effective application of DTDRM, it will not be able to conclude cases if the 
other Member State does not effectively manage its case-load.  

 The driver behind the different levels of actual applications by Member can be assumed 
to  be  differences  in  the  way  Member  States  organise  these  procedures,  the  level  of 
resources which are invested, or legal impediments applying in some Member States, e.g. 
internal processes to be followed between different authorities.    

2.4.2.3 No mandatory binding dispute resolution    

The DTDRM traditionally laid down in DTC requires the States involved in the dispute 
only to 'endeavour reaching an agreement' on how to eliminate double taxation. Due to 
this rather vague objective, in many cases disputes are not resolved with the consequence 
that the taxpayer is left with  a situation  of double taxation, a problem which cannot be 
addressed by an ordinary court (see section 1.2 above). 

Since  2008  the  OECD  Model  Tax  Convention  provides  for  extending  the  MAP  with  a 
mandatory  binding  arbitration  procedure  for  cases  where  the  competent  authorities 
cannot  reach  an  agreement  on  one  or  more  issues  so  that  the  resolution  of  the  case  is 
prevented.50  However,  the  uptake  of  arbitration  procedures  in  DTCs  within  the  EU  is 
rather limited; as of today an arbitration clause was agreed only in 14 out of 370 bilateral 
DTC within the EU51.   

It  is  widely  recognised  that  the  EU  AC  as  multilateral  convention  providing  one 
mandatory binding dispute resolution mechanism which also became part of the 'Acquis' 
is  a  major  achievement  which  significantly  improves  the  situation  compared  to  the 
DTDRM traditionally laid down in DTC.    

One can assume that the slow uptake of arbitration clauses is driven by the priority of MS 
for tax collection rather than on agreeing on an obligation to solve disputes instead of just 
endeavouring  to  resolve  a  double  taxation  dispute.  In  addition  the  fact  that  the 

48   Bilateral DTCs CY/LV, CY/LU, CY/NL, CY/FI, CY/HR, DK/ES, DK/FR, HR/LU; 
49   See Annex G 
50   See paragraphs 63 ff. of the Commentary on Article 25 OECD MTC 
51   Bilateral DTCs: AT/DE, BE/UK, EE/NL, FI/NL, FR/DE, FR/UK, DE/LU, DE/SE, DE/UK, IT/SI, 

NL/PT, NL/SI, NL/UK, ES/UK; 

23 

 
 
                                                 
implementation  of  an  arbitration  clause  in  a  DTC  is  often  part  of  a  comprehensive 
renegotiation of a DTC, a process which often takes years,  

2.4.2.4 Confidentiality of DTDRM proceedings 

The  MAP  and  the  arbitration  proceedings  are  currently  kept  confidential  in  order  to 
protect business and commercial secrecy and also to ensure flexibility and efficiency for 
the  governments52.  This  lack  of  transparency  differs  substantially  from  what  prevails 
under judicial proceedings and is described by some academics as the 'Achille’s heel' of 
the  MAP53.  By  this,  the  DTDRM  is  criticised  as  being  contradictory  to  the  overall54 
increased  demand  and  legitimate  public  interest  for  more  transparency  regarding 
companies’ tax affairs55. 

2.5. Consequences 

2.5.1 Consequences for companies 

Enforcement and administrative costs related to DTDRM  

Different kind of costs may arise in the context of DTDRM at different stages of a double 
taxation dispute. It was difficult to obtain detailed information from stakeholders on the 
costs involved in a DTDRM as they are not recorded separately, i.e. traced to a specific 
case.  Furthermore,  it  is  not  possible  to  distinguish  these  costs  between  what  is  directly 
related to the DTDRM and which costs are related to the underlying issue, e.g. transfer 
pricing. Thirdly, the costs vary on a case by case basis, i.e. the complexity of the issue 
underlying  the  dispute,  the  Member  States  involved  and  the  amounts  at  stake  are  non-
comparable. The subsequent analysis is therefore largely qualitative. 

- 

legal,  advisory  and  procedural  cost  –  companies  bear  costs  of  consultancy  on 
legal tax matters both to avoid disputes (e.g. the 'forced' cost as described below) 
and to ensure their resolution should they occur (e.g. cost of assessing the choice 
of available dispute procedures, costs of extensive data collection required by the 
tax  authorities  to  compose  and  follow  a  dossier,  and  costs  for  translations 
especially  in  fact  intensive  cases  such  as  transfer  pricing,  etc.).  In  some  cases 
these  costs  will  go  towards  recruitment  or  dedicating  of  specialised  company 
staff56 to  assess  the company's  standing from the tax point of view or  cover the 
dispute  case;  in  others,  towards  an  external  consultancy  to  provide  sustained 
service.  These  costs  are  decreasing  the  available  resources  for  focusing  on 
profitability to hedging their bets on potential tax disputes 57. Moreover, the input 
received  from  stakeholders  and  publications  also  reveal  that  often  various 

52   Christians (2011), par 121. See also Bertolini M (2010) available at: 

http://works.bepress.com/michelle_bertolini/1/  

53   Riza (2014) p 11 
54  

IFA (2015) - 69th IFA Congress in Basel, Switzerland Sept 1, Report by Philip Baker Pasquale Pistone 
(General Reporters), Practical protection of taxpayers’ rights 
55   See United Nations Report. Doc E/C 18/2015/CRP.8   §129 
56   See see Wrappe  S C - Side Effect of BEPS-Driven Changes: Hiring, Coordinating Additional 

Transfer Pricing Staff 24 Transfer Pricing Report 791 

57   Bertolini  et al. (2012)  p.22 

24 

 
 
                                                 
procedures  are  taken  in  parallel.  Naturally,  this  multiplication  of  procedures 
multiplies  the  otherwise  avoidable  costs  for  choosing,  launching  and  following 
the case.  
interest  cost  –  these  costs  usually  arise  for  the  suspension  of  the  tax  which  is 
imposed double, or if the tax is already paid, to obtain liquidity from third party 
providers.  the  amounts  at  stake  vary  in  relation  to  the  amounts  disputed  the 
duration during which the dispute is going on. 
secondary costs – whereas largely intangible, these are the costs arising from how 
the functioning of DTDRM is perceived, irrespective of whether this perception is 
based on actual experience or not 58.  

- 

- 

For  these  costs,  the  duration  of  the  procedure  has  a  further  damaging  direct  impact  as 
they are assumed to increase proportionate to the duration of the procedures.  

Despite the difficulties of estimating the actual costs, the majority of stakeholders regard 
the  costs  associated  with  DTDRM  as  excessive/significant59.  Cost  reduction  has  been 
quoted  systematically  as  one  of  the  areas  where  improvements  to  the  DTDRMs  were 
necessary6061 62.  

An  E&Y  survey  revealed  that  companies  were  unlikely  to  invoke  a  subsequent 
arbitration procedure once they have experienced it once63. Stakeholders in the 2016 data 
collection also reported that as a result of a lack of trust in the current DTDRM they map 
tax risks and try to  prevent disputes by getting ex ante certainty  by tax administrations 
via rulings. These efforts are naturally connected with the same kind of costs which are 
similar to those of a double taxation dispute.  

Finally, when a double taxation dispute is not solved, the double taxes imposed become 
the company's operational costs.   

58   See e.g. Ernst & Young (2003), Transfer Pricing 2003 Global Survey: Practices, Perceptions, and 

Trends in 22 Countries Plus Tax Authority Approaches in 44 Countries showing that where the MAP 
has the highest success rate (allocation cases), it was used in only 51% of the appealed cases (10% of 
total adjustments), and only 57% of parents and 68% of subsidiaries who used the process indicated 
that they would do so again (88% in the United States). 

59   See section 2.6 of the 2016 data collection, Annex H 
60   Bertolini M.S. and Weaver P.Q., Mandatory Arbitration within Tax Treaties: A Need for a Coherent 
International Standard, (February 2012). 2012 American Taxation Association Midyear Meeting: 
JLTR Conference , page 29  

61   D'Alessandro, V. (2009) Improving the Resolution of International Tax Disputes, Tax Notes 

International, 55, 1153-65, Section II.G Elevated Legal Costs; 

62   See e.g. 2003 report by E&Y showing that where the MAP has the highest success rate (allocation 
cases), it was used in only 51% of the appealed cases (10% of total adjustments), and only 57% of 
parents and 68% of subsidiaries who used the process indicated that they would do so again (88% in 
the United States). 

63   See e.g. Ernst & Young (2003), Transfer Pricing 2003 Global Survey: Practices, Perceptions, and 

Trends in 22 Countries Plus Tax Authority Approaches in 44 Countries 

25 

 
 
                                                 
Figure 9:   Enforcement and administrative costs associated with DTDRM and costs of 

double taxation non-eliminated 

Source:   European Commission 
Notes:   Higher level of provisions in financial statement to reflect risks underlying double taxation disputes  

Nearly all accounting standards require that liabilities or provisions have to be recognised 
in financial statements in order to give a true and fair view of the economic reality. This 
includes  uncertain  tax  positions  which  may  result  from  ineffective  DTDRM  and  cover 
liabilities  in  case  of  non-full  recovery  of  the  amounts  in  dispute,  also  taking  into 
consideration the uncertainty in terms of timing and amount. A majority of stakeholders 
mentioned that these reserves or provision would not be booked otherwise64 and would 
have  an  impact  on  earnings  and  possibly  share  values65  66.  This  has  also  attracted  the 
attention of accounting standards setters67 68 

64   See section 6  in Annex H 
65   See Bloomberg BNA Transfer Pricing Report,  March SEC Roundup (04/02/2015, p.1491), 

November SEC Roundup (11/12/2015, p. 891), August SEC Roundup (09/03/2015, p.443), Securities 
and Exchange Commission Financial Statements Filed during October 2015, detailing Transfer 
Pricing Issues (11/12/2015), Securities and Exchange Commission Financial Statements Filed during 
January 2016 , detailing Transfer Pricing Issues (03/17/2016) – One of the cases filed is particularly 
representative of the impact on reserves and profit disclosure for listed companies having activities in 
the EU, particularly in the Digital economy. In this case, the amount at risk was initially of 325 Mill. 
EUR based on the first assessment notified by the tax authorities and has been ultimately decreased to 
96 Mill. EUR (Amaya Inc. /PokerStarts Ink – Permanent Establishment Issue Transfer Pricing Report 
09/01/2015 p. 443g  

66   See Financial Times, US companies warn tax avoidance crackdown will hit earnings 29/03/2016 
http://www.ft.com/intl/cms/s/0/b6f04f72-f12c-11e5-aff5-19b4e253664a.html#axzz4AuMH4pbl  
67   See recent work of the IASB –Draft IFRIC Interpretation DI/2015/1 Uncertainty over Income tax 

treatments 

68   See Mandatory Arbitration within Tax Treaties: A Need for a Coherent International Standard 

Michelle S. Bertolini and Pamela Q. Weaver, (February 2012). 2012 American Taxation Association 
Midyear Meeting: JLTR Conference  p.20: "For Companies doing business globally and dealing with 
the uncertainty of relief from double taxation, compliance with these provisions (FAS 109/FIN 48) can 
be difficult. See also Burnett, Chloe, International Tax Arbitration. Australian Tax Review, Vol. 36, 
No. 3, pp. 173-190, 2007; Sydney Law School Research Paper No. 08/31 page. 188. Bakker A. J. 
(2010) Tax Risk Management: From Risk to Opportunity, IBFD –Chapter 6-6 page 183 (re. Canada, 
quoting in particular the example of the Fifth Protocol to the Canada-United States tax treaty which 
includes a Mandatory binding arbitration mechanism) 

26 

 
 
 
                                                 
The existence of mandatory arbitration and effective DTDRM would mitigate the above-
mentioned  risks  and  may  help  taxpayers  to  better  estimate  them  for  financial  reporting 
purposes. The related compliance costs under the international accounting standards such 
as  International  Accounting  Standard  IAS  12  (respectively  FAS  109/Fin  48/ASC  740 
under US Generally Accepted Accounting Principles) should also decrease.  

Investment decisions   

There  is  no  conclusive  evidence  as  to  the  effects  of  DTCs  on  FDIs  ('Foreign  Direct 
Investments')69. However, promoting investment has been for long one of their declared 
objectives  and  DTCs  are  de  facto  valued  by  countries  and  governments  as  a  means  to 
advance  their  economic  development70:  From  this  perspective,  DTCs  and  particularly 
DTDRM71  contribute  to  creating  a  favourable  investment  climate.  According  to  some 
authors, this is all the more important that in the current global environment where most 
non-tax barriers to cross-border trade and investment have been removed, tax is viewed 
as 'the last trade and investment barrier'72.  

Furthermore at the level of the investors, the shortcomings highlighted above have direct 
negative consequences on investment decisions for the following reasons: 

- 

the lack of certainty and predictability as regards potential excessive taxation and 
the  corresponding  remaining  cash  ultimately  assigned  to  the  financing  of  the 
investment  and  the  period  needed  to  achieve  neutralisation  of  the  excessive 
taxation, are key for FDIs;73   

-  a  non-effective  DTDRM  triggers  additional  tax  cost  for  the  investors  which 
cannot  be  neutralised  with  sufficient  predictability  and  puts  at  risk  the  part  of 
remaining cash which can be repatriated. 

When deciding upon an investment, if an investor is aware that a decision involves a risk 
of  a  double  taxation  dispute  and  uncertainty  particularly  as  regards  the  time  frame  in 
which such dispute can be resolved between the States, he will take these considerations 
into  account  and  potentially  not  invest.  Good  practices  of  investment  planning  in  a 

69   See Sauvant and Sachs (2009), "The Effects of Tax Treaties on Foreign Direct Investment: BIT, DTT 

and Investment Flows", Oxford University Press 
Idem 

70  
71   Regarding DTDRM, by analogy with findings on effective justice systems in the 2016 EU Justice 

Scoreboard page 4 one could conclude that improving DTDRM's effectiveness could have a positive 
impact on establishing confidence throughout the business cycle.  

72   See The E15 Initiative, ICTSD and World Economic Forum, "Strengthening the Global Trade and 

Investment System for Sustainable Development – International Investment Law and Taxation: from 
coexistence to cooperation – Julien Chaisse January 2016 –globalisation". 

73   See the above-mentioned reference: Strategic considerations for tax controversy risk management and 
double taxation avoidance, Darrin Litsky, Sanjav Kumar and Eric Lesprit, International tax review, 22 
March 2016 – Also Commission Services Progress Report on the EU-Japan Business Round Table 
(2015) where the following statement was made "In order to enhance direct investment between the 
EU ( …) in particular, the measures to avoid double taxation of the same profit should be regarded as 
a sine qua non. (…). The EU Member States and Japan should modernise the tax treaties between 
them and ensure, to the greatest possible extent (…) that corresponding adjustments and arbitration in 
case of transfer pricing taxation are provided. 

27 

 
 
                                                 
context  of  financial  crisis  and  globalisation  where  investment  cycles  are  significantly 
shortened refer to a period of three years.74 

Several sources and the public consultation confirm that multinational companies based 
in major trade countries consider that, to enhance direct investment in the EU, measures 
to reward risk taking associated with cross-border investment are essential75.  

Merger and Acquisitions and implications on strategic intangibles 

Responses to the 2016 questionnaire show that a risk of double taxation and the lack of 
effective  DTDRM  arising  in  jurisdictions  trigger  certain  arrangements  in  cases  of 
Mergers  and  Acquisitions  (e.g.  the  inclusion  of  warranty  clauses,  price  increases, 
reorganisations).76 77   

The  likelihood  of  unsolved  disputes  in  this  context  have  led  multinationals  to  set  up 
contingency  plans  for  materialising  risk  which  can  impact  business  decisions:  these 
models  aim  in  particular  at  selecting  and  assessing  transactions  being  at  risk  of  double 
taxation in order to revise or even 'scrap' them78. 

the  procedure, 

the  assessment  of 

The  consequences  described  above,  i.e.  the  enforcement  and  administrative  costs, 
economic  costs  and  considerations  of  investments  apply  irrespective  of  the  size  of  an 
enterprise, i.e. also for SMEs. However, the enforcement and administrative costs linked 
initiation  and  management,  can  be 
its 
to 
disproportionately  higher  for  the  SMEs,  in  particular  when  set  against  the  absolute 
amount of tax amount disputed being relatively small when compared to the disputed tax 
amounts reported by some multinationals. At the same time, the economic costs (to be) 
borne by the SMEs can still be gravely detrimental to their economic activity; the shifts 
in their balance-sheet ratios triggered by higher (and uncertain) tax provisions can have a 
far  higher  impact  on  their  financial  condition  and  cash  flow.  With  costs  of  access  to 
capital already relatively high and investment decisions inherently more risky in terms of 
potential  negative  consequences  this  would  further  hinder  the  SMEs  operations, 
investment and expansion.  

74   Bradley et al., Managing the Strategy Journey, Mc Kinsey Quaterly July 2012 
75   Litsky et al.., Strategic considerations for tax controversy risk management and double taxation 

avoidance, International tax review, 22 March 2016 
76   See section 6.7 of the 2016 data collection, Annex H 
77   See Bloomberg BNA Transfer Pricing Report,  March SEC Roundup (04/02/2015, p.1491), November 

SEC Roundup (11/12/2015, p. 891), August SEC Roundup (09/03/2015, p.443), Securities and 
Exchange Commission Financial Statements Filed during October 2015, detailing Transfer Pricing 
Issues (11/12/2015), Securities and Exchange Commission Financial Statements Filed during January 
2016 , detailing Transfer Pricing Issues (03/17/2016) – One of the cases filed is particularly 
representative of the impact on reserves and profit disclosure for listed companies having activities in 
the EU, particularly in the Digital economy. In this case, the amount at risk was initially of 325Mill. 
EUR based on the first assessment notified by the Tax authorities and has been ultimately decreased to 
96Mill. EUR (Amaya Inc. /PokerStarts Ink – Permanent Establishment Issue Transfer Pricing Report 
09/01/2015 p. 443), 

78   For illustration of an approach considered by MNEs to set up such a self-examination process of 

transactions being at risks, see International taxation controversy: the coming sytorm Mc Dermott Will 
& Emer, 17 March 2014 

28 

 
 
                                                 
2.5.2 Consequences for the Member States 

The costs associated with solving a double taxation dispute for companies are mirrored to 
some extent in the costs arising at the level of the Member States. A long duration of a 
case,  ongoing  information  gathering  or  bilateral  negotiations  between  Member  States 
increase these costs significantly and bind human recourses.   

Jurisdictions  that  do  not  ensure  an  efficient  and  effective  DTDRM  in  place  to 
counterbalance the effects of increased scrutiny on aggressive tax planning, increased tax 
audit policy and risk of diverging interpretation, will face negative consequences in terms 
of  foreign  investments  at  least  in  the  medium  term.79  Additionally,  at  the  international 
level  and  particularly  when  establishing  relationships  with  third  countries,  having 
effective DTDRM in place in an EU Member States is considered as being a cornerstone 
to  ensure  a  friendly  business  and  investment  tax  environment.80  81  82  Another  point  to 
consider is that a non- functioning DTDRM is expected to result in companies mapping 
their  tax  risks  and  engage  in  structures  to  minimise  their  taxes  which  may  emerge  to 
shifting  of  profits  away  from  States  with  a  risk  of  double  taxation  remaining  (Tax 
planning and base erosion).  

The  shortcomings  identified  above  increase  the  respective  administrative  burden  and 
costs. A long duration of a proceeding ties up resources and causes costs which cannot be 
reclaimed and which, in the worst case scenario, can exceed the amount of tax at issue83. 
Furthermore,  in  cases  where  tax  payments  have  to  be  reimbursed  as  a  result  of  the 
DTDRM,  interest  may  have  to  be  paid  by  the  State  for  the  kept  tax  payments84.  This 
applies especially in times where the interest rate for kept tax payments may be higher 
than the current market rate85.  

2.5.3 Consequences for the society 
Unresolved  double  taxation  disputes  are  not  in  the  interest  of  any  stakeholder86  87.  The 
absence of consideration of taxpayers' rights in most of the currently used DTDRM has 
been  recently  underlined  by  surveys  and  scholar  publications88,  particularly  as  regards 
the recognition of taxpayers as an interested party, the absence of appeal rights in case of 

79   van Herksen M., Mulvihill P., Liebenberg J. and Shah V. The impact of BEPS on tax controversy, 

80  

International Tax Review February 2016 
"Choudhury H. and Owens J. "Bilateral Investment Treaties and Bilateral Tax Treaties", International 
Tax Investment Center Issues Paper, June 2014 
Irish ( 201), pp. 121-144, 2011  

81  
82   See, Litsky, et al.(2016) – Also Commission Services Progress Report on the EU-Japan Business 

Round Table (2015 

83   As an illustration, see the two first cases of arbitration under the EU Arbitration Convention on 

transfer pricing: see Sidhu (2014) page 590 & seq. and D'Alessandro (2009) 
84   See e.g. section 2.17 tax collection and interest charges doc JTPF/002/2015   
85   For example in Germany the interest for tax refunds is 6% (strting 15 months after accrual of tax). 

Kroh/Weber "Verzinsung von Steuererstattungsansprüchen als risikolose Geldanlage" (Interest on tax 
refunds as Capital investment non official translation) DSTR DStR 2015 Heft 50, 2794 - 2797: 

86   UN Tax Committee (2015) Doc. E/C 18/2015 CRP 8 page 7 in particular 
87   See above footnote 93 
88   See 69th IFA Congress in Basel, Switzerland Sept 1, Report by Philip Baker and Pasquale Pistone 

concluding that the mutual agreement procedure under bilateral treaties is "a black hole of taxpayers' 
rights",  

29 

 
 
                                                 
non-activity of the Competent Authorities or denial of access89, the ability for taxpayers 
to participate in the procedure, the lack of publicity of the decisions and transparency. 
A  non-efficient  DTDRM  has  also  indirect  consequences  such  as  reduced  trust  in  tax 
administration and lower voluntary compliance resulting in reduced tax collection90.  

2.6 Baseline Scenario  

The baseline scenario starts with the status quo as regards the DTDRM available in the 
EU as described in section 2.3.1 and their problems as identified in section 2.3.2 above. It 
is expected that within the following years the few bilateral relations which are currently 
not yet covered by a DTC will be covered in the mid-term. This assumption is based on 
common  recognition  of  the  benefit  of  DTC  and  the  continuously  growing  network  of 
DTCs worldwide. For the same reason it is not expected that a DTC between MS will be 
terminated in future, although it can of course not be excluded. The baseline scenario is 
therefore  that  a  100%  coverage  of  bilateral  relations  between  MS  with  DTC  will  be 
achieved.   

The economic environment in the baseline scenario is characterised by a further increase 
of  globalisation  and  cross  border  trade.  However,  to  keep  the  estimation  rather 
conservative,  a  specific  factor  for  increasing  cross  border  business  activity  is  not  taken 
into account.    

As  regards  the  availability  of  mandatory  binding  arbitration  in  DTC,  the  baseline 
scenario  takes  into  account  the  other  developments  on  improving  DTDRM,  e.g.  in  the 
context of Action 14 of the OECD BEPS project. The efforts at the level of the OECD 
are  expected  to  increase  the  number  of  bilateral  DTC  between  MS  with  mandatory 
binding arbitration. However, given the slow uptake of these clauses in the past shows a 
certain reluctance of at least some MS, it is not expected to achieve 100% coverage. For 
a  DTC  where  such  a  clause  is  newly  implemented  such  a  clause  would  provide  an 
incentive for States to more quickly resolve double taxation disputes not yet covered by 
the  AC.  On  the  other  hand,  the  fact  of  being  bound  to  agree  may  make  some  Member 
States  more  reluctant  to  accept  cases.  It  is  not  possible  to  quantify  these  two  effects. 
More  important  is,  however,  the  expectation  that  the  issues  which  are  encountered  for 
DTDRM containing mandatory binding arbitration clauses will remain/occur also for the 
new  treaties.  For  this  reason,  the  estimation  of  the  future  development  is  made  on  the 
basis  of  the  numbers  reported  for  the  EU  AC,  and  a  DTDRM  with  mandatory  binding 
arbitration. 

As  a  further  aspect  the  CCCTB  proposal  needs  to  be  taken  into  account.  It  is  assumed 
that the implementation of a CCCTB in the EU will reduce the number of double taxation 
disputes  for  corporate  taxpayers  subject  to  the  CCCTB  or  opting  for  the  CCCTB. 
However,  the  CCCTB  comes  to  its  full  effect  only  if  the  rules  for  consolidation  apply, 
Given that the CCCTB is suggested to be implemented in 2 steps with consolidation to 
be  achieved  in  the  second  step  and  that  double  taxation  disputes  arise  mostly  several 
years after  the  respective  tax period it is  expected that the full effect of the CCCTB as 

89   For example Denmark  
90   See e.g. IMF Current challenges in Revenue mobilization improving tax compliance 

https://www.imf.org/external/np/pp/eng/2015/020215a.pdf 

30 

 
 
                                                 
regards a reduction of double taxation disputes is not expected to occur in the short term. 
Furthermore,  the  full  CCCTB  is  suggested  to  mandatorily  apply  only  to  large 
multinational  groups91.  For  groups  below  the  threshold  the  CCCTB  would  not  be 
mandatory.  Its  adoption  will  help  to  reduce  the  number  of  disputes  arising  for  those 
companies  to  which  it  will  apply.  Due  to  a  lack  of  data  it  is  difficult  to  estimate  the 
percentage of companies with a turnover above EUR 750 million facing double taxation 
issues. An indication may be taken from the 2010 public consultation where 37 % of the 
respondents were companies with a turnover of more than EUR 1 billion.  

For the reasons elaborated above, the estimation of the number of cases pending and the 
amounts  involved  by  2020  does  not  take  into  account  effects  of  an  eventual 
implementation  of  the  CCCTB  proposal  but  rather  on  an  environment  which  is 
comparable to the status quo.  

Development of pending dispute cases 

Statistical data on cases pending under the EU AC as reported by MS on a yearly basis 
since 2004 until 201492 is considered as a reliable starting point for estimating the future 
development of double taxation disputes in the EU.93 94 

Historical data shows a continuous and accelerated increase of pending double taxation 
disputes.  This  is  confirmed  by  the  stakeholders  input  from  the  2016  consultation95 
according  to  which  64  %  of  the  respondents  expect  a  significant  increase  of  disputes. 
Moreover, there has been a significant increase of audits in the field of transfer pricing 
with an expected increase of the amount of taxes to be reassessed96 97. Such trends make 
it justified to expect that pending double taxation cases will continue to increase in the 
future.    

Starting  from  640  double  taxation  disputes  on  transfer  pricing  and  profit  attribution  to 
Permanent Establishments pending under the AC at the end of 2014, it is conservatively 
estimated that the total number of double taxation disputes will increase to around 1 200 
by the end of 2020.98 99.  

Amounts involved  

91   The CCCTB proposal foresees mandatory application for a company belonging to a consolidated 

group with a total consolidated group revenue that exceeds EUR 750 000 000 

92   Numbers for the end of 2015 are not yet available 
93   http://ec.europa.eu/taxation_customs/taxation/company_tax/transfer_pricing/forum/index_en.htm 
94   The reliability of this self-reported data is increased by the fact that MS report bilateral cases from 

their perspective only which is then matched with the cases by the other MS involved in the case. The 
numbers reported are therefore considered as a reliable basis.  

95   See section 5.3 of the 2016 data collection, Annex H 
96   See e.g. Germany: PwC Study "Betriebsprüfungen 2015" (tax audits 2015 translated) 

http://www.pwc.de/de/pressemitteilungen/2015/in-grossunternehmen-fuehrt-nahezu-jede-
betriebspruefung-zu-mehrsteuern.html Denmark announced that for 2016 (as in 2015), its efforts 
would focus on transfer pricing cases http://www.skm.dk/media/1340763/aktuelle-skattetal_transfer-
pricing_020516.pdf 

97   See e.g. Martens (2015) or Allen&Overy(2014) 

http://www.allenovery.com/SiteCollectionDocuments/Multinational-tax-practices-face-growing-
scrutiny.pdf 

98   For the detailed calculation it is referred to ANNEX D 
99   For the CCCTB proposal see section 1.4 above 

31 

 
 
                                                 
Starting from an estimated amount of tax amount of tax involved in the estimated number 
of  910  double  taxation  disputes  at  the  end  of  2014  and  an  estimated  number  1200  of 
pending  cases  at  the  end  of  2020  the  amount  of  taxes  involved  in  these  disputes  is 
conservatively  estimated  with  EUR  15  billion.  This  amount  does  not  take  into  account 
the expected increase of taxes disputed in these cases where the amounts at stake reach a 
size creating economic risks for the company affected100.     

Denial of access to DTDRM and duration of procedures 

The aspects of enforceability are implicit denial of access, explicit denial of access and 
blocked or delayed procedure. As the kind and application of DTDRM are not expected 
to change without EU action, it is expected that the number of case where taxpayers are 
deprived  from  access  ('implicit  denial  of  access')  or  where  access  is  actually  denied 
('explicit denial of access') will increase proportionately to the increase of double taxation 
disputes.  The  same  applies  for  cases  which  are  blocked  or  delayed.  Based  on  the 
observations on the duration of AC cases available for 2012 – 2014 it is assumed that at a 
minimum around 20% of the total cases will take longer than 2 years to be solved, with a 
tendency  of  a  longer  duration  in  general  and  with  some  of  them  taking  significantly 
longer  and  involving  substantial  amounts  of  taxes101.  The  uncertainty  created  in  these 
cases will require taxpayers to allocate significant provisions in their balance sheets and 
indirectly affect their competitiveness.  

the  fact 

the  DTDRM  and 

the  unchanged  procedures  of 

that  various 
Given 
recommendations  which  aimed  at  reducing  enforcement  and  administrative  burden 
associated with DTDRM did not have a significant impact in the past, it is expected that 
they will not be reduced in short and mid-term if no action is taken. To the contrary, the 
growing  number  and  complexity  of  business  models  and  cross-border  integrated  value 
chains could only result in an increase of the overall time needed to resolve a tax dispute. 
In  the  US  for  example,  the  processing  time  for  resolving  cases  through  the  use  of  the 
MAP  has  increased  from  almost  16  months  on  average  in  1971  to  almost  two  years  in 
1980  and  2.4  years  by  1995102  to  2.6  years  in  2015103.  The  same  information  emerged 
from the EU AC statistics which show that the percentage of cases older than 2 years vs. 
total cases pending cases rose from 37.5 % in 2012 to 40.5 % in 2014.  

As regards consistent uptake in Member States, past experience shows that the guidance 
and the recommendations that were developed by the EU or OECD did not significantly 
impact  the  way  the  DTDRMs  are  handled  in  different  Member  States.  Unless  the 
Member States take more unilateral (or bilateral) efforts to enforce the speedy and least 
burdensome DTDRM procedures, it is not expected that a more homogenous application 
of the mechanisms will be ensured in the future.    

100   See section 2.3.2.1 d) above 
101   For the detailed calculation it is referred to ANNEX E 
102   Z.D. Altman, ( 005); p. 128; 
103   See IRS Competent Authority Statistics April 27, 2016, noting that in the years 2011 and 2014 the 

average time is between21,4 and 27,9 months; 

32 

 
 
                                                 
2.7 The EU's right to act 

2.7.1 Legal basis  

Article  115  of  the  Treaty  on  the  Functioning  of  the  EU  (TFUE)  is  the  legal  basis  for 
legislative initiatives in the field of corporate taxation. Although no explicit reference to 
direct taxation is made, Article 115 refers to directives for the approximation of national 
laws  where  their  differences  directly  affect  the  establishment  or  functioning  of  the 
internal market.  

Naturally,  double  taxation disputes are not  limited  to  intra-EU situations. Effective and 
efficient  prevention  of  double  taxation  are  recognised  as  critical  to  building  an 
international  tax  system  that  supports  economic  growth  and  a  resilient  global 
economy104.  The  OECD  has  for  a  long  time  acknowledged  the  shortcomings  of  the 
DTDRM under the model tax treaty (the Mutual Agreement Procedure in Art 25 OECD 
including  a 
MTC)  and  has  since  recommended  a  series  of 
recommendation  for  Member  States  to  agree  on  mandatory  binding  arbitration  in  their 
DTCs.  The  most  recent  BEPS  Action  Plan  also  envisages  making  dispute  resolution 
mechanisms  more  effective.  OECD  /  G20  countries  participating  in  the  BEPS  project 
agreed on a minimum standard, best practices and a process for monitoring the number of 
cases,  their  duration  and  the  amounts  of  tax  involved.  However,  although  the  business 
community and a number of countries consider that mandatory binding arbitration is the 
best way of ensuring that tax treaty disputes are effectively solved through MAP, there 
was  no  consensus  between  the  OECD  and  G20  countries  regarding  the  adoption  of  a 
mandatory  binding  arbitration.  Nevertheless,  a  limited  number  of  OECD  and  G20 
countries, including 13 Member States, are taking forward the work on such a mandatory 
binding arbitration mechanism105.  

improvements, 

In  addition even  a  common  multilateral instrument  like the  EU  AC  still  encounters the 
shortcomings  identified  in  section  2.4  above.  A  future  EU  initiative  shall  address 
precisely the shortcomings of the existing DTDRMs.    

2.7.2 Subsidiarity  

Double taxation as discussed in this impact assessment concerns cross-border situations 
where  two  (or  more)  Member  States  are  involved.  It  can  happen  that  two  jurisdictions 
correctly claim corporate income tax on the same profit (a double taxation dispute). The 
Commission is not proposing to eliminate such cases per se, but to provide a mechanism 
for taxpayers in such situation to achieve effective tax relief by having the dispute solved.   

As already mentioned in  the problem analysis, the shortcomings  of the DTDRM in the 
EU are a serious impediment to a well-functioning Internal Market; on the one hand, it is 
distortive  to  the  tax-neutral  economic  decisions  of  the  European  businesses  and 
prohibitive  to  investment,  creating  market  access  barriers  also  for  foreign  investments. 
On  the  other  hand,  it  is  costly  for  the  Member  States  in  terms  of  lost  value  stemming 
from the foregone economic activity of companies which decide to opt out of economic 

104   See executive summary final report OECD/G20 Action 14 
105   See Annex II of the final report OECD/G20 Action 14 

33 

 
 
                                                 
operations 
administrative costs and burdens of ineffective dispute resolution mechanisms.  

territory.  Furthermore,  both  parties  suffer  from  avoidable 

their 

in 

Whereas the content and interpretation of the provisions of tax treaties between Member 
States  remain  within  their  sole  competence,  it  is  important  to  guarantee  taxpayers  an 
effective mechanism to resolve cross-border double taxation disputes, should they occur. 
As  revealed  by  the  consultation  of  stakeholders  underlying  this  impact  assessment, 
bilateral DTC adopted by Member States and even a multilateral agreement such as the 
EU AC alone do not provide effective solutions for the effective and efficient resolution 
of such disputes. This equally applies to other kind of international agreements which are 
structured in a similar way.  

The design of a more enforceable and efficient DTDRM at EU level is expected to limit 
the duration, the costs and uncertainty associated with the resolution of double taxation 
disputes in cross border situations. It is also expected to significantly limit the number of 
cases of double taxation in the EU which remain unresolved for non-justified reasons. By 
this, uncertainty on the side of taxpayers facing double taxation will be removed and the 
implications of a negative perception eliminated. 

DTDRM  are  by  nature  bi-  or  multilateral  procedures,  requiring  coordinated  action 
between  the  Member  States.  Consequently,  if  only  one  Member  State  is  willing  to 
effectively  solve  the  tax  dispute  and  even  if  relevant  procedures  are  available  in  the 
applicable DTDRM, the disputes will not be solved if the other Member States does not 
agree  or  do  not  act  as  set  out  in  the  DTDRM.  The  problems  cannot  be  addressed  by 
Member States working individually. A common procedure between States requires that 
the procedure is applied in the same way in both States. This needs to be ensured for the 
functioning  of  DTDRM.  The  experience  gained  from  monitoring  of  the  functioning  of 
the EU AC, a DTDRM agreed between MS by way of a multilateral convention without 
involvement  of  the  EU,  confirms  that  the  issues  will  persist  if  double  taxation  disputes 
remain  left  to  be  solved  by/within  Member  States  alone,  i.e.  the  procedure  is 
implemented and designed individually. The same applies for the ongoing international 
activities  in  this  field  which  aim  at  promoting  bilateral  agreements  between  MS. 
Furthermore,  uncoordinated  action  by  Member  States  will  at  best  fail  to  achieve  the 
intended  improvements  and,  at  most,  deepen  the  problems  identified  through  enlarging 
the schism between Member States. 

In summary, the need for EU action is well-founded and confirmed by evidence over the 
last  decades  which  show  that  no  EU  action,  i.e.  leaving  the  resolution  of  intra  EU 
disputes between Member States to Member States only has not and is unlikely to solve 
in the future the problems currently encountered.  

3. THE OBJECTIVES  

3.1 General 

The  general  objective  is  to  contribute  to  an  improved  EU  business  environment, 
contributing  to  boost  of  investment,  the  creation  of  jobs  and  to  maintain  the  trust  of 
businesses and citizens in public administration.  

34 

 
 
This general objective translates into ensuring a well-functioning Internal Market, with 
no distortive legal or factual arrangements for the market operators in the area of taxation 
of  corporate  income.  Competitiveness  of  the  companies  should  be  preserved  through 
reduced/removed costs and risks of double taxation disputes and/or litigation procedures. 
Removing (some of) the concerns related to a possible tax dispute for the companies, by 
promoting  an  EU  wide  coherent  approach  of  treatment  of  such  disputes,  should 
ultimately contribute to the completion of a fair and predictable tax system in the EU 
which also safeguards the interests of MS 

Specific objective is to ensure legal certainty and a level playing field for EU businesses. 
In  addition the settlement of disputes should be made  sufficiently transparent to  ensure 
the trust of citizens and business in the public system.    

3.2 Specific objectives in detail 

3.2.1 Ensure legal certainty 

It should be ensured that there is defined access to the available DTDRM in justified 
cases and for eligible taxpayers. This includes making sure that taxpayers being subject 
to a double taxation dispute are not deprived from effective access to these remedies and 
are protected from an unjustified denial of access (i.e. covering both implicit and explicit 
denial of access). The procedure should be not be delayed or blocked in unjustified cases, 
i.e. is followed. On the other hand, enforceability should not be applicable when a MS 
would be obliged to solve the double taxation dispute if it is not justified, e.g. in cases 
where  the  action  giving  rise  to  an  adjustment  of  transfers  of  profits  of  the  enterprises 
concerned is liable to a serious penalty106. Consequently, the objective is to increase legal 
certainty  by  ensuring  that  DTDRM  in  the  EU  work  in  practice  as  they  should  and  by 
providing an independent review of any action/non-action taken. The existing DTDRMs 
in the EU should be improved with the view to ensure that they are conclusive, i.e. the 
dispute  is  settled.  The  improvements  should  ensure  a  settlement  of  double  taxation 
disputes  by  mandatory  binding  arbitration  for  all  parties  involved  and  corporate  tax 
issues.  

3.2.2 Ensure a level playing field for EU business 

A well-functioning DTDRM should be improved in a way that an appropriate balance 
is achieved between effort and the expected outcome, i.e. solving the double taxation 
dispute. Costs and administrative burden for all stakeholders should be balanced towards 
the expected outcome. The objective is to design DTDRM in the EU in such an efficient 
way that results in a cost benefit ratio which makes it a valuable and sustainable way to 
address double taxation disputes for all  stakeholders. One aspect  of this is  to achieve  a 
resolution of the dispute within an appropriate time frame (Duration).  

As  DTDRMs  are  procedures  which  involve  two  or  more  Member  States,  ensuring  that 
the  applicable  DTDRM  are  available  and  applied  in  a  homogenous  manner 
throughout  the  EU  would  not  only  help  to  reduce  economic  and  administrative  costs 

106   See Article 8 1 of the EU Arbitration Convention (90/463/EEC) 

35 

 
 
                                                 
and  burdens,  but  also  remove  some  of  the  uncertainties  that  companies  face  in  their 
cross-border situations (e.g. with regard to investment decisions). 

3.2.3 Ensure transparency 

A  further  specific  objective  is  to  address  the  criticism  expressed  towards  the  existing 
DTDRM  as  being  a  'black  box'  for  taxpayers  and  the  public.  Tax  dispute  resolution 
procedures, particularly arbitration, should be public, i.e. not confidential and private, as 
long  as  (i)  the  issue  presented  is  of  public  interest,  (ii)  affects  the  society  and  (iii) 
'transparency  would  assist  other(s)  …  in  understanding  the  issues  involved  and  would 
permit  more  widespread  and  effective  participation  in  the  system'  as  well  as  more 
confidence  in  it107.It  should  be  ensured  that  the  procedures  set  out  a  degree  of 
transparency  which  contributes  to  increasing  the  trust  of  citizens  and  businesses  in  the 
public system.  

3.3 How the objectives are linked to the problems 

Figure 10: linking the objectives to the problems 

General objectives 

Specific objectives 

Link to the problem 

An improved EU business 
environment, contributing 
to boost of investment, the 
creation of jobs and 
confidence of business and 
citizens in public 
administration 

Avoid explicit denial of access to 
DTDRM in cases where it is not 
justified 

Make accepting an implicit denial 
of access to DTDRM less 
attractive for the taxpayer 

Avoid that procedures are 
unjustified delayed of procedures 

Avoid that  disputes are not 
resolved and double taxation 
remains 

Avoid inappropriate costs and 
compliance burden 

Remove the differences of 
application encountered in MS 

Ensure legal 
certainty 

Ensure a level 
playing field for EU 
business 

Ensure an 
appropriate level of 

Avoid that the level of 
transparency is below other 

107   See Bertolini M.S. "Mandatory Arbitration Provisions within the Modern Tax Treaty Structure - 

Policy Implications of Confidentiality and the Rights of the Public to Arbitration Outcomes" ExpressO 
(2010) Available at: http://works.bepress.com/michelle_bertolini/1/, page 36, also quoting Cindy G. 
Buys, The Tensions between Confidentiality and Transparency in International Arbitration, 14 Am. 
Rev. Int’l Arb. 121, 134-135 (2003). 

36 

 
 
 
 
                                                 
General objectives 

Specific objectives 

Link to the problem 

transparency 

judicial proceedings 

4. OPTIONS  

As regards the choice of options it should first be recalled that the initiative is a follow up 
of  earlier  initiatives,  e.g.  the  1976  directive  proposal,  which  resulted  in  the  EU 
Arbitration  Convention  in  1990.  Already  this  initiative  was  based  on  the  long  standing 
approach of addressing double taxation by way of bi- or multilateral agreements which 
set out rules for the allocation of taxing rights and a dispute resolution mechanism. An 
alternative to this approach is the CCCTB proposal providing for a harmonised tax base 
with consolidation which would, as demonstrated above, not address all situations and all 
taxpayers.  There  are  therefore  good  reasons  to  continue  following  the  traditional 
mechanisms  and  try  to  improve  them  where  necessary.  For  this  improvement  all 
considerable options have been evaluated which were suggested during the monitoring of 
previous instruments as well as those received from stakeholder consultations.   

An  option  which  combines  different  forms  of  legal  instruments,  e.g.  a  combination  of 
recommendations  and  a  directive,  was  discarded  due  to  the  fact  that  a  DTDRM  only 
works  if  it  has  no  weakness,  i.e.  all  problems  are  addressed  with  the  same  strength. 
Otherwise there would be a risk that the problems would emerge where the DTDRM is 
weak. 

All  options  are  also  closely  linked  to  the  procedures  established  by  EU  Arbitration 
Convention. Although shortcomings have been encountered it should be recalled that the 
EU  AC  is  a  well-established  instrument  working  properly  in  the  majority  of  cases. 
Starting from scratch would therefore not be justified.   

All  options  will  envisage  the  use  of  tools  available  in  the  EU  for  exchanging  of 
information under the Directive on Administrative Cooperation (DAC)108.  

4.1. Baseline scenario - Status-quo/No Action  

If  no  action  is  taken  at  EU  level  the  situation will  develop  as  described  in  the  baseline 
scenario. This means that it is expected that the uptake of mandatory binding arbitration 
in DTC will continue at a low level allowing Member States not being obliged to resolve 
double taxation disputes. In instances where mandatory binding arbitration is agreed like 
for cases covered by the EU AC, the positive effect of such an agreement compared to a 
situation with no mandatory binding resolution will remain. However, there will also be 
situations remaining where due to a lack of enforceability timelines are not respected or 
disputes not resolved at all. The consequences of the shortcomings described in section 
2.3  above  will  remain  for  taxpayers  facing  double  taxation  disputes  and  the  negative 
perception of this situation with its detrimental effects for Member States will continue. 
The expected significant increase of double taxation disputes will further exacerbate this 
situation in the future.       

108   See http://data.consilium.europa.eu/doc/document/ST-12802-2015-INIT/en/pdf  

37 

 
 
                                                 
4.2 Option A - improving implementation of the existing DTDRMs  

Option A1 and Option A2 build around improved use, implementation and enforcement 
of  the  existing  DTDRMs.  They  aim  to  maximise  the  utility  and  benefits  of  amicable 
dispute  resolutions.  All  of  them  would  require  different  actions  to  be  taken  at  the 
Member State level. As the DTDRMs currently agreed in the EU are in DTC and in the 
EU AC, i.e. are not part of EU legislation, all actions could only be recommended rather 
than legislated by the EU.  

4.2.1.  Improve  the  functioning  of  DTCs  and  the  EU  AC  and  supplement  DTC  with 
mandatory binding ad hoc arbitration   (Option A1) 

Under this option, the EU would recommend to the Member States to  

 

 

 

 

to  adopt  recommendations  developed  by  the  OECD  on  best  practice  to  make 
dispute resolution mechanisms in bilateral DTCs more effective109; 
in  the  context  of  the  EU  AC,  to  adopt  recommendations  developed  by  the  EU 
JTPF in its proposal for a revised Code of Conduct110; 
to  provide  for  mandatory  binding  arbitration  by  supplementing  the  MAP 
provided  for  in  bilateral  DTCs  with  an  arbitration  clause  along  the  lines  of 
Article 25 (5) of the OECD MTC. 
to start negotiation for extending the scope of EU AC beyond the area of transfer 
pricing disputes.  

4.2.2. Arbitration by the CJEU (Option A2) 

Under  this  option,  the  EU  would  encourage  Member  States  to  introduce  a  specific 
enforcement mechanism in their bilateral DTCs which refers to Article 273 TFEU111 and 
provides powers to the CJEU jurisdiction to ultimately decide on any remaining double-
taxation dispute between EU Member States after a defined period of time. An example 
of such a mechanism can be found in Art. 25 of the German-Austrian tax treaty. 

Options A1 and A2 would aim at reinforcing the messages of the OECD and supplement 
the  international  developments  in  the  area  of  double  taxation  disputes.  The  suggested 
policy instrument is a Commission Recommendation.   

4.3. Option B – Establishing an enabling legal framework for broadened DTDRM   

Under this option, mandatory binding arbitration mechanisms would be extended to areas 
where they are not yet available, and the shortcomings identified as regards enforcement 
and  effectiveness  of  these  mandatory  binding  arbitration  mechanisms  are  individually 
targeted.  The  suggested  policy  instrument  for  Option  B  is  an  EU  Directive.  The 
suggested  policy  instrument  for  Option  C  is  an  EU  Directive.  The  nature  of  an  EU 

109   See section I of the OECD's final report on BEPS Action 14 (Making dispute resolution more 

effective) http://www.oecd.org/tax/making-dispute-resolution-mechanisms-more-effective-action-14-
2015-final-report-9789264241633-en.htm  

110 See e.g. JTPF report on Improving the Functioning of the Arbitration Convention, doc. JTPF/002/2015. 
http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/foru
m/final_report_ac_jtpf_002_2015_en_final_clean.pdf 

111   273 TFEU provides: The Court of Justice shall have jurisdiction in any dispute between Member 

States which relates tothe subject matter of the Treaties if the dispute is submitted to it under a special 
agreement between the parties. 

38 

 
 
                                                 
legislative instrument in form of a directive would also allow for a possibility to have the 
implementation  and  application  by  Member  States  monitored  by  the  European 
Commission and eventual non-compliance of a certain Member State addressed. 

This option builds on the current mechanism of the EU AC.  It establishes by way of an 
EU directive the procedure which is already laid down in the EU AC, i.e. providing for a 
Mutual Agreement Procedure (MAP), initiated by the taxpayer, under which the Member 
States shall freely cooperate and reach an agreement on how to solve the double taxation 
dispute within 2 years. If Member States do not reach an agreement within the 2 years, an 
arbitration procedure is set out which solves the dispute by way of arbitration. Under this 
supplementary  arbitration  procedure,  a  panel  of  3  or  5  independent  persons/arbitrators 
will be appointed by the Member States (one or two for each Member State appointing 
one  independent  chairman),  together  with  two  representatives  of  each  Member  States 
('the advisory commission'). Member States will provide the rules of functioning of the 
advisory commission. If they fail to do so, the rules of functioning will be agreed by the 
advisory  commission  itself.  This  advisory  commission  would  issue  a  final  opinion  on 
eliminating the double taxation in the disputed case, which would be binding for Member 
States, unless they finally agree to a different solution.  

It  also  extends  the  scope  of  the  EU  AC  beyond  transfer  pricing  to  all  cross-border 
situations  subject  to  double  income  tax  imposed  on  business  profit,  and  provides  for  a 
default  fast-track  enforcement  mechanism  by  the  competent  National  Courts  of  each 
Member State: the National Court act on behalf of the Member States in order to appoint 
the independent persons.  

The  latter  enforcement  mechanism  is  modelled  after  the  UNCITRAL  Model  Law  on 
International  Commercial  Arbitration  as  regards  the  pivotal  role  of  'Court  or  other 
authority for certain function of arbitration assistance and supervision' (so-termed  'Juge 
d'appui'  functions)112  and  limited  in  the  cases  at  stake  to  the  shortcomings  specifically 
identified as part of the present assessment, i.e. denial of access and prolonged procedure 
exceeding 2 years. 

4.4.  Option  C  –  A  comprehensive  new  EU-specific  double  taxation  resolution 
mechanism  

Option  C  would  go  beyond  the  improvement  of  the  existing  DTDRMs  as  described  in 
option  B.  It  would  contain  the  same  dispute  resolution  mechanism  but  in  addition 
propose by way of an  EU Directive a new set of specific  and  targeted rules  on how to 
solve instances of double taxation for all identified conflicting tax legislations triggering 
double taxation for corporate cross-border situations at EU level. The rules would have to 
be  developed  and  will  identify  conflicts  that  may  arise  and  at  the  same  time  provide  a 
solution  in  a  sense  of  providing  which  State  would  be  allowed  to  tax  and  how  double 
taxation would have to be removed.  

112   For an overview of the current state of play within EU28 as regards the implementation of this 

UNCITRAL Modal Law on Commercial Arbitration and particularly the provisions on "the Court or 
other authority for certain function of arbitration assistance and supervision" see Appendix J 

39 

 
 
                                                 
5. ANALYSIS OF IMPACT  

5.1 Impact on the problems encountered 

An  important  aspect  for  the  analysis  of  impacts  is  that  an  option  would  only  have  an 
impact if it is capable to solve all the procedural problems encountered for the current 
DTDRM.  The  monitoring  of  an  existing  DTDRM  in  the  EU  did  show  that  if  a 
shortcoming  remains,  the  reluctance  encountered  with  respect  to  the  application  of  the 
DTDRM would move to this element.  

For example:  

  a  mechanism  that  ensures  the  resolution  of  a  double  taxation  dispute  may  put 
higher  burdens  on  the  acceptance  of  the  case,  i.e.  access  may  more  often  be 
denied if not justified,  

  strong rules for accepting a case alone will not help if it is  not  ensured that  the 

 

procedure is also completed in time or at all or 
if the strong mechanism only applies to a limited set of issues, e.g. the attribution 
of profits to Permanent Establishments, the procedure would be blocked if there is 
no  strong  mechanism  for  solving  a  dispute  on  the  existence  of  a  Permanent 
Establishment.  

The  following  analysis  of  impact  therefore  distinguishes  between  a  DTDRM  that 
works,  is  capable  of  addressing  all  issues  with  sufficient  strength  and  a  DTDRM 
which is at risk of having shortcomings remaining.  As options A1 and A2 take the 
form of a recommendation there is a risk that these recommendations are actually not 
followed  while  the  nature  of  option  B  and  C  would  ensure  their  actual 
implementation  and  application.  The  more  detailed  comparison  of  each  option  as 
regards their effectiveness, efficiency and coherence with the Commission's general 
objectives is reserved for section 6 below. 

5.2 Economic impacts 

5.2.1 Impact on the competiveness of companies 

An  effective  dispute  resolution  mechanism  would  have  several  implications  for 
companies. A reduction of the compliance burden should allow a reduction of the costs 
associated with an actual double taxation dispute. The overall procedure should last less 
than  three  years,  something  which  fits  with  currently  recommended  standards  and 
expectations  in  terms  of  investment  and  transaction  cycles  of  companies.  Lastly,  the 
setting  up  of  an  effective  dispute  resolution  mechanism  will  reduce  constraints  and 
compliance  burden  for  companies  in  terms  of  risk  management  which  is  linked  to  the 
necessity  to  publish  warnings  in  case  of  high  amount  of  double  taxation  positions  and 
potential reputational costs113. 

For example: 

113   See for illustration of such compliance and risk: Huibregtse et al. A Post-BEPS Primer for Boards: 

Staying in Control of Transfer Pricing Risks 24 Transfer Pricing Report 1131 01/07/2015 

40 

 
 
 
                                                 
Glaxo Case involving United Kingdom and the United States of America: it has been 
one  of  the  largest  tax  disputes  in  tax  authorities'  history  (USD 3.1 billion).  The  case 
dealt with transfer pricing related to a market intangible and patent royalty payments.  
The case is referred to as 'showcase example of MAP gone wrong'.  

Bertolini  M.S.  ,  Mandatory  Arbitration  Provisions  within  the  Modern  Tax  Treaty 
Structure  –  Policy  Implications  of  Confidentiality  and  the  Rights  of  the  Public  to 
Arbitration Outcomes" University of Hartford, February 15, 2010 

The  obligation  of  results  enshrined  in  all  the  options  is  intended  to  remove  the  most 
important  drawback  of  the  current  system,  which  is  that  there  is  no  certainty  in  the 
effective  and  full  relief  of  double  tax  within  a  certain  period114,  leading  to  the 
consequences described in section 2.4.2.1 above.  

A procedure that actually ensures that the double taxation dispute will finally be resolved 
should also remove the need for companies to initiate several procedures in parallel and 
hope  that  one  of  them  would  result  in  the  elimination  of  double  taxation,  i.e.  it  would 
avoid duplication of procedures and time-consuming  management of the corresponding 
litigation files. This should lead to a reduction of compliance costs, legal fees and cost of 
financing of disputes, and finally impact positively the companies' margins. Costs saved 
will increase companies' free cash flow which will then be available for investments in 
their  profit  generating  activities.  Especially  the  avoidance  of  duplication  of  procedures 
will have a direct effect which will not have to be counterbalanced with the increase of 
costs  for  the  main  DTDRM  taken.  The  economic  impact  on  competitiveness  will 
therefore depend on the impact of the options on the problems encountered. Given that 
options  A1  and  A2  bear  a  higher  risk  of  actually  not  being  followed  their  impact  on 
competitiveness  is  expected  to  be  lower  than  for  options  B  and  C.  on  the  problems 
encountered meaning.  

5.2.2 Impact on the investment, growth and jobs 

At this point the reasoning which has led countries to conclude DTC with the aim to 
eliminate double taxation and to include a procedure for solving disputes should be 
recalled, e.g. the goal to remove impediments to international trade and investment by 
reducing the threat of double taxation that can occur when both contracting States impose 
tax on the same income. Solving disputes between Member States on how to remove 
double taxation will in the long term contribute to economic growth and remove barriers 
to the Internal Market. 115. 

114   Markham M., The Resolution of Transfer Pricing Disputes through Arbitration, Intertax, Volume 33, 

Issue 2, 2005 

115   See letter to the US Senate of US business organisations (http://www.transatlanticbusiness.org/wp-
content/uploads/2015/02/2015Trade-Association-letter-on-tax-treaties-to-all-Senate-leadership.pdf 
page 1 " And, for illustration the most recent US tax treaties negotiated with EU MS containing an 
arbitration clause Ireland (1999), Netherlands (2004), Belgium (2006), France and Germany (2009), 
Spain (2015) – All containing an arbitration clause similar to the one included in the US-Switzerland 
tax treaty for which Mr. Kerry (Committee on Foreign Relations) reported as follows in 2011 to the 
US Senate: consideration of arbitration (page 29) "Tax treaties cannot facilitate cross-border 

41 

 
 
 
                                                 
 
For example: Company A in State A wants to distribute its products and establish client 
relationship in Member State B. Given an increased double taxation risk in Member State 
B it decides to mitigate the risk of double taxation by not incorporating a business in 
Member State B but rather to enlarge the existing distribution centre in State C which 
deliver its products to clients in Member State B via Member State C.   

The reluctance to incorporate a business in a MS with an increased risk of double 
taxation is confirmed by more than half of the businesses which indicated in the 2016 
consultation that mandatory binding arbitration facilitates the incorporation of a business 
in another State116. Consequently, the lower the risk of double taxation and the more 
effective the procedure for solving a dispute is, the better the perception will be and the 
more positive the impact on investment, growth and jobs is expected to be. Given that 
options A1 and A2 may be perceived as involving the risk of actually not being 
followed, their impact is expected to be lower than for options B and C.  

5.2.3 Impact on tax revenues and tax administration efficiency 

There is a common acceptance that in the medium and long term, ensuring overall and 
consistently  the  actual  elimination  of  double  taxation  through  an  effective  dispute 
resolution  mechanism  increases  the  level  of  compliance  with  international  obligations 
and the potential level of economic activity and tax collection117.  

In the example above, there would be no taxable presence of company A in State B and 
the profits company A generates from selling its products to Member State A would  be 
taxed in Member State C and/or Member State A.  

An effective dispute resolution mechanism with an obligation for a result is an incentive 
for  administrations  to  design  efficient  and  operational  procedures.  It  has  effects  on 
reducing delays and thus administrative and legal costs to tax administrations118 resulting 
from long lasting and inefficient procedures. The same applies to the situation where the 
MAP would pre-empt a mandatory arbitration phase, this being a strong incentive for tax 
administrations  to  solve  disputes  in  an  efficient  and  time  effective  manner,  before 
arbitration  (i.e.  2  years).  Lastly,  a  procedure  containing  arbitration  or  a  dedicated 
Alternative Dispute Resolution mechanism: being confronted with experts in the domain, 

investment and provide a more stable investment environment unless the treaty is effectively 
implemented by the respective tax administrations of the two countries. Under our tax treaties, when a 
U.S. taxpayer becomes concerned about implementation of the treaty, the taxpayer can bring the 
matter to the U.S. competent authority who will seek to resolve the matter with the competent 
authority of the treaty partner. The competent authorities are expected to work cooperatively to 
resolve genuine disputes as to the appropriate application of the treaty. 
The U.S. competent authority has a good track record in resolving disputes. Even in the most 
cooperative bilateral relationships, however, there may be instances in which the competent 
authorities will not be able to reach a timely and satisfactory resolution. Moreover, as the number and 
complexity of cross-border transactions increases, so do the number and complexity of cross-border 
tax disputes. Accordingly, we have considered ways to equip the U.S. competent authority with 
additional tools to assist in resolving disputes promptly, including the possible use of arbitration in 
the competent authority mutual agreement process". http://www.gpo.gov/fdsys/pkg/CRPT-
112erpt1/html/CRPT-112erpt1.htm 

116   See section 6.11 of the 2016 data collection;  
117   Altman, Z. D. (2005) Dispute Resolution under Tax Treaties, IBFD Chap. 6, 6.2.1.1 
118   Idem 

42 

 
 
                                                                                                                                                 
 
tax  administrations  would  limit  efforts  and  investment  in  preparation  of  briefs  and 
establishing technical aspects119.  

In summary, the stronger the obligation to resolve the dispute in a given time line is, the 
more  efficiency  is  required  from  tax  administrations.  Due  to  a  lack  of  an  effective 
enforcement  mechanism,  Options  A1  and  A2  involve  the  risk  of  actually  not  being 
followed. Their impact on tax administrations' effectiveness is therefore considered to be 
lower than for option B and C. On the other hand Member States would need to assign 
additional resources in each of the options A - C. 

5.2.4 Impact on capital markets 

The effective removal of double taxation ensured by a timeliness mechanism shall have 
positive effect at the level of shareholders: they should reduce both the level and number 
of warnings by stock listed companies as regards material increase in their tax costs and 
give  investors  more  certainty  in  order  to  assess  the  related  risks  attached  to  their 
investment120, thus facilitating the shareholders' investment decisions.  

Additionally, the introduction of an effective dispute resolution mechanism shall limit the 
recognition of uncertain tax positions (for transfer pricing and permanent establishment 
in particular)121 avoiding thus not only compliance costs, due to reporting requirements 
under  the  international  accounting  standards  such  as  IFRS  109  and  FIN  48,  but  also 
direct impact on the share value due to the recognition of losses or potential losses.  

Again,  the  lower  the  risk  of  double  taxation  and  the  more  effective  the  procedure  for 
solving a dispute is, the better the perception will be and the more positive the impact on 
the capital markets is expected to be. Given that options A1 and A2 may be perceived as 
involving  the  risk  of  actually  not  being  followed,  their  impact  is  expected  to  be  lower 
than for options B and C. 

5.2.5 Impact in terms of level playing field – Implications for SMEs 

All options proposed benefit companies of all sizes but Option B and C are particularly 
relevant for SMEs as it facilitates recourses in case of blocked procedures and limits the 
administrative burdens in a timeliness framework. In particular, Option B aims at setting 
up an expedited arbitration process with some flexibility options, which are of particular 
interest for SMEs. First the MAP procedure is limited to 2 years. A shorter hearing and 
limited fees can be then be applied as the terms and conditions under which the recourse 
to the National Court and the submission to Arbitration Committee have been designed 
in such a way to nominate a sole arbitrator or even a mediator122,. 

119   Idem 
120   See Financial Times US Companies warn tax avoidance crackdown will hit earnings by Vanessa 
Houlder (also referring to European companies having stepped up their warnings on tax issues). 
121   For a description and illustration of the currently contemplated revision of the standards, see Litsky 

D., Kumar S. and Lesprit E., Strategic considerations for tax controversy risk management and double 
taxation avoidance, International tax review, 22 March 2016   

122   As an example of a precedent procedure being of potential benefits for SMEs, see the « WIPO 

Expedited Arbitration » diagram for SMEs under « Dispute Resolution for SMEs » www.wipo.int -] 

43 

 
 
                                                 
For example: SME A in Member State A producing a specific product has many clients 
from its neighbouring Member State. The number of customers decrease with increasing 
distance between the customer's place of living and the business of SME A in Member 
State A. For an SME, especially if profit margins are relatively small, opening a second 
distribution/manufacturing facility is a significant investment. This risk of investment is 
proportionally higher for an SME than for a large MNE. A guarantee that the outbound 
investment will not result in double taxation and combined with an effective procedure 
will reduce the risks associated with this investment.  

5.3 Social and societal impact 

The  MAP  and  the  arbitration  proceedings  are  currently  kept  confidential  in  order  to 
protect business and commercial secrecy, and also to ensure flexibility and efficiency for 
the  governments123.  This  lack  of  transparency  differs  substantially  from  what  prevails 
under judicial proceedings and is described by some academics as the 'Achilles' heel' of 
the  MAP124.    This  creates  issues  in  terms  of  overall  fairness  and  effectiveness  of  the 
system and contradicts also the overall125 increased demand and legitimate public interest 
for more transparency regarding companies’ tax affairs126.  

The  dispute  resolution  mechanisms  (i.e.  both  MAP  and  ADRM)  enshrined  in  the 
proposed  options,  particularly  in  option  B  and  C,  are  aligned  with  the  most  recently 
recommended standards in terms of transparency127.  

In terms of impact, option A1 will not increase the overall confidence in the system while 
Option  A2,  provided  it  is  actually  followed,  and  options  B  and  C  will  increase  the 
consistency and  the  overall  trust  in  the  system  at  the level of  the  citizen128.  As  regards 
mandatory  arbitration  specifically,  it  should  also  ensure  sufficient  accountability  of  the 
arbitrators towards governments at the stage of alternative dispute resolution ('ADR')129 
and, broadly, hold governments to account to a certain extent vis-à-vis other governments 
and taxpayers130. In the medium term, the effectiveness of the overall system will benefit 
from  such  publicity:  it  will  result  in  increased  availability  of  materials  dealing  with 
international dispute resolution within the EU, allow EU governments to assess whether 
tax  treaties  really  accomplish  its  goals,  and  increase  the  pressure  on  the  competent 

123   Christians (2011), par 121 see also Bertolini M (2010) Available at: 

http://works.bepress.com/michelle_bertolini/1/ 

124   Riza (2014) p 11 
125   IFA (2015) - 69th IFA Congress in Basel, Switzerland Sept 1, Report by Philip Baker Pasquale Pistone 

(General Reporters), Practical protection of taxpayers’ rights 

126   See United Nations Report. Doc E/C 18/2015/CRP.8 §129 
127   See UNCITRAL Rules on Transparency (2014) 
128   UN report E/C 18/2015/CRP.8 par 123-124 
129   See Christians, Allison, How Nations Share (April 19, 2011). Indiana Law Journal, Vol. 87, 2011; 

Univ. of Wisconsin Legal Studies Research Paper No. 1159. 

130   Michelle S Bertolini. "Mandatory Arbitration Provisions within the Modern Tax Treaty Structure - 

Policy Implications of Confidentiality and the Rights of the Public to Arbitration Outcomes" ExpressO 
(2010)  Available at: http://works.bepress.com/michelle_bertolini/1/ page 39 

44 

 
 
                                                 
authorities to reach a negotiated settlement while also decreasing the incidence of double 
taxation at taxpayers' level131. 

5.4 Impact on third countries 

Such an initiative taken by the EU in order to improve the mechanisms is bound to have 
implications  beyond  the  EU.  It  ensures  an  efficient  and  effective  management  of  cases 
which  can  be  enshrined  in  triangular  situations.  It  also  creates  precedents  and  good 
practices, positioning the EU as a whole and the EU Member States positively towards 
other  countries  and  particularly  the  EU  major  trade  partners.  Lastly,  it  is  limiting  the 
negative  impact  on the EU  Member  States  reputations  and avoids  diplomatic  costs  and 
possible  renegotiation  of  tax  treaties.  Some  authors  have  demonstrated  in  this  respect 
how  an  effective  dispute  settlement  mechanism  can  positively  impact  such  transaction 
costs: without such a mechanism, treaty rules are clarified only through renegotiating the 
treaties,  something  which  is  a  resource-intensive,  slow  and  cumbersome  process132. 
Accordingly,  the  same  authors  established  that  such  an  effective  mechanism  provides 
crucial  'assurance  information'  to  governments  regarding  how  other  government's 
performance  and  intentions  are  positioned  towards  the  application  and  interpretation  of 
treaties:  this  is  naturally  fostering  an  effective  and  converging  application  of  rules 
governing  cross  border  transactions133.  Therefore,  the  better  the  respective  options 
address all the problems encountered, the more positive is the impact. Options B and C 
as taking the form of a directive are expected to have a more positive impact.  

6. COMPARISON OF OPTIONS 

The following comparison assesses the options against the following criteria: 

  effectiveness - whether and how they achieve the objectives  
  efficiency - how much costs and burden can be expected for the taxpayer the tax 

administration to implement the options, and  

  coherence  -  with  the  Commission's  overall  objectives  but  also  with  the 

international developments.    

6.1 Comparison of Effectiveness 

As far as effectiveness is concerned, the following tables assess how the options achieve 
the  set  of  objectives  compared  to  the  baseline  scenario  by  rating  them  as  neutral/no 
change to the baseline (0), slightly positive, (+), positive (++) and negative (-).  

6.1.1. Option 0, no change  

Objective  Effect  Explanation of impact 

131   Bertolini.M. "Mandatory Arbitration Provisions within the Modern Tax Treaty Structure - Policy 
Implications of Confidentiality and the Rights of the Public to Arbitration Outcomes" ExpressO 
(2010)  Available at: http://works.bepress.com/michelle_bertolini/1/ page 40 

132   Robert A. Green Antilegalistic Approaches to Resolving Disputes Between Governments: A 

Comparison of the International Tax and Trade Regimes (1998à Cornell Law Faculty Publication 
Paper 939, pages 127 & 128 

133   See footnote 119 

45 

 
 
                                                 
Objective  Effect  Explanation of impact 

Ensure 
legal 
certainty 

0 

Ensure  a 
level 
playing 
field 
EU 
business 

for 

0 

Ensure 
transparen
cy 

0 

With  the  EU  AC  a  common  DTDRM  is  available  in  the  EU  covering 
the most often encountered source for double taxation (transfer pricing). 
There  is  often  no  possibility  for  a  taxpayer  to  enforce  action  of  a 
Member State nor for one Member State to enforce action of the other 
Member  State  involved  in  the  double  taxation  dispute.  Cases  will 
remain where there will not be a possibility to have action or non-action 
of a MS under an applicable DTDRM. Under the baseline scenario it is 
assumed  that  there  will  not  be  a  full  uptake  of  mandatory  binding 
arbitration in bilateral treaties. Beyond cases falling under the EU AC, 
mandatory  binding  arbitration  will  remain  limited  with  a  risk  that  in 
these cases the dispute would not be solved at all. Consequently, there is 
no legal certainty on whether and how a double taxation dispute will be 
resolved in a justified case. 

Costs  and  compliance  burden  per  case  associated  with  the  current 
DTDRM will remain at the same level. Some costs, e.g. those relating to 
the duration of a double taxation dispute are expected to increase. Total 
costs  of  stakeholders  for  double  taxation  disputes  in  the  EU  will 
increase  due  to  the  increased  caseload.  Member  States  are  following 
different approaches with  respect to the practical application of agreed 
DTDRM  (e.g.  the  EU-AC).  and  will  continue  to  do  so  in  the  future. 
While  some  Member  States  achieve  a  balance  of  cases  initiated  vs. 
cases completed over the time, in other Member States a significant and 
continuous  mismatch  is  encountered  which  results  in  an  increasing 
inventory. 

Under the baseline scenario DTDRM will remain a pure State to State 
procedure  with  the  role  of  the  taxpayer  being  limited  to  request  the 
initiation  of  such  a  procedure  and  with  no  requirement  to  publish 
decisions.  Although  the  EU  AC  includes  the  possibility  of  publishing 
decisions  by  an  advisory  commission,  it  is  expected  that  the  current 
reluctance  to  actually  do  so  will  remain.  The  criticism  that  the  current 
DTDRM is more confidential than other judicial proceedings and being 
contradictory  to  the  overall134  increased  demand  and  legitimate  public 
interest  for  more  transparency  regarding  companies’  tax  affairs  will 
remain 

134   IFA (2015) - 69th IFA Congress in Basel, Switzerland Sept 1, Report by Philip Baker Pasquale Pistone 

(General Reporters), Practical protection of taxpayers’ rights 

46 

 
 
 
 
                                                 
6.1.2 Effectiveness of Option A i)  

Objective  Effect  Explanation of impact 

Ensure 
legal 
certainty 

0 

The experience with the EU AC shows that in a significant number of 
cases the procedure is not followed due to the fact that neither DTC nor 
the  AC  contain  an  instrument  ensuring  enforceability.  There  will 
continue  to  be  no  possibility  for  a  taxpayer  to  enforce  action  of  a 
Member State nor for one Member State to enforce action of the other 
Member  State  involved  in  the  double  taxation  dispute.  Instances  will 
remain  where  there  is  no  possibility  for  the  taxpayer  to  have  action  or 
non-action of a Member State under an applicable DTDRM reviewed by 
an independent body.  

Option A (i) would extend the scope of mandatory resolution of double 
taxation disputes by recommending:  

(i)  to  start  negotiation  for  extending  the  scope  of  EU  AC  beyond  the 
area of transfer pricing disputes or  

(ii) to supplement bilateral DTC with an arbitration clause. However, a 
recommendation which would result in replacing the EU AC with a set 
of diverging bilateral DTDRM would even be detrimental to the current 
state of play.  

Recommendations  to  introduce  mandatory  binding  arbitration  and  to 
provide  for  a  possibility  to  have  MS  action  reviewed  by  a  court  have 
been done in the past135 and had a positive but rather limited effect on 
MS actual action.  

Consequently,  the  level  of  legal  certainty  is  expected  not  to  change 
significantly.  For  this  reason  the  effectiveness  is  rated  only  as  'neutral' 
but may be negative if the recommendation would weaken the EU AC, 
i.e. move from one single instrument with one single approach towards 
a variety of procedures in the EU.  

Ensure  a 
level 
playing 
field 

+ 

Following  the  best  practices  developed  by  the  OECD  for  MAP  under 
DTC136 and by the EU JTPF as regards the EU AC137 would lower the 
complexity  and  the  compliance  burden  associated  with  the  current 
DTDRM.  However,  a  certain  degree  of  complexity  and  length  is 
inherent to State to State procedures and double taxation disputes. This 

135   The OECD MTC recommends adopting mandatory arbitration in bilateral treaties. The actual uptake 
by MS was, however, rather limited as currently only 14 of 370 DTC foresee mandatory binding 
arbitration  

136   See section I of the OECD's final report on BEPS Action 14 (Making dispute resolution more 

effective) http://www.oecd.org/tax/making-dispute-resolution-mechanisms-more-effective-action-14-
2015-final-report-9789264241633-en.htm  

137   See e.g. JTPF report on Improving the Functioning of the Arbitration Convention, doc. 

JTPF/002/2015. 
http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/foru
m/final_report_ac_jtpf_002_2015_en_final_clean.pdf 

47 

 
 
                                                 
Objective  Effect  Explanation of impact 

creates  barriers  to  the  possibility  of  increased  efficiency  by  way  of 
measures  like  shortening  of  deadlines  or  relief  from  information 
requirements. Furthermore, past experience indicates138 that the effect of 
a recommendation on MS actual practices is not fully effective. As can 
also  be  seen  from  the  past  experience,  recommendations  would  not 
ensure  a  homogenous  uptake  in  MS  practices.  For  these  reasons 
comparing  option  A1  with  the  baseline  scenario  is  assessed  as  only 
slightly positive.    

to  State  procedure  without 
Recommending  applying  a  State 
involvement  of  the  taxpayer  and  with  no  obligation  to  publish  the 
conclusions  reached  will  not  increase  the  level  of  transparency.  It  is 
rather expected that the reluctance as regards the possibility to publish 
the decision of an advisory commission will not change. Option A1 will 
therefore  not  enhance  trust  of  citizens  in  the  public  system.  For  these 
reasons  comparing  option  A1  with  the  baseline  scenario  is  rated  as 
neutral 

Ensure 
transparen
cy 

0 

6.1.3 Effectiveness of Option A ii)  

Objective  Effect  Explanation of impact 

Ensure 
legal 
certainty 

+ 

Option A 2 would extend the scope of mandatory resolution of double 
taxation disputes by recommending a referral of the case to the CJEU. 

The  referral  of  double  taxation  disputes  to  the  CJEU  for  arbitration  in 
case MS are not able to solve the dispute by mutual agreement would, if 
agreed by MS, ensure that one Member State may enforce action of the 
other Member State involved. If adopted, it will ensure that cases which 
are  actually  referred  to  the  CJEU  will  be  reviewed  by  an  independent 
body.  There  would,  however,  continue  to  be  no  possibility  for  a 
taxpayer to enforce action of Member States. Therefore, where none of 
the Member States  actually  refers a case to  the CJEU when due, there 
would not be a possibility to have the case under an applicable DTDRM 
reviewed by an independent body. 

However,  the  AC  shows  that  in  a  significant  number  of  cases  the 
procedure is not followed due to the fact that neither DTC nor the AC 
contains an instrument ensuring enforceability. 

138   Code of Conducts on the functioning of the EU AC have been communicated by the Commission and 
endorsed by the Council in 2004 and 2009. The 2014 monitoring of the AC revealed that some of 
these recommendations are actually not followed in practice. see achievements 1 and 5 of the JTPF 
website 
http://ec.europa.eu/taxation_customs/taxation/company_tax/transfer_pricing/forum/index_en.htm    

48 

 
 
 
                                                 
Objective  Effect  Explanation of impact 

A  further  point  to  consider  is  that  option  A2  takes  the  form  of  a 
recommendation.  Past  experience  shows  that  recommendations  are 
sometimes  actually  not  followed  or  followed  only  with  a  significant 
delay  

enforcement  mechanism.  Taking 

Option  A2  would  surely  improve  the  situation  but  would  still  lack  an 
a 
effective 
recommendation would also not ensure its actual implementation in MS 
bilateral  relations,  especially  in  a  short  term  period.  For  these  reasons 
the level of legal certainty compared to the baseline scenario is rated as 
'slightly positive'.  

form  of 

the 

Ensure  a 
level 
playing 
field 

Ensure 
transparen
cy 

+ 

+ 

Under  option  A2  efficiency  will  be  increased  by  recommending 
following  the  best  practices  developed  by  the  OECD  for  MAP  under 
DTC139 and by the EU JTPF as regards the EU AC140 for the first phase 
of  the  MAP.  However,  a  certain  degree  of  complexity  and  length  is 
inherent to the State to State procedure and double taxation disputes and 
limits  the  possibility  of  increased  efficiency  by  way  of  measures  like 
shortening of deadlines or relief from information requirements. As can 
be  seen  from  the  past  experience  recommendations  as  regards  the 
common  application  of  DTDRM  would  not  ensure  a  homogenous 
uptake  in  practice.  Furthermore,  past  experience  indicates141  that  the 
effect of a recommendation on Member States actual practices are rather 
limited resulting in only a 'slightly positive'.  

Option A2 provides that if a case is submitted to arbitration the decision 
by the CJEU will have the same degree of transparency as other judicial 
proceedings  at  CJEU  level.  There  will  not  be  more  transparency  for 
double taxation disputes solved by mutual agreement. As option A2 also 
depends  on  actually  being  implemented  in  MS  bilateral  relations  the 
impact  compared  to  the  baseline  scenario  is  rated  only  as  'slightly 
positive'.  

139   See section I of the OECD's final report on BEPS Action 14 (Making dispute resolution more 

effective) http://www.oecd.org/tax/making-dispute-resolution-mechanisms-more-effective-action-14-
2015-final-report-9789264241633-en.htm  

140   See e.g. JTPF report on Improving the Functioning of the Arbitration Convention, doc. 

JTPF/002/2015. 
http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/foru
m/final_report_ac_jtpf_002_2015_en_final_clean.pdf  

141   Code of Conducts on the functioning of the EU AC have been communicated by the Commission and 
endorsed by the Council in 2004 and 2009. The 2014 monitoring of the AC revealed that some of 
these recommendations are actually not followed in practice. see achievements 1 and 5 of the JTPF 
website  
http://ec.europa.eu/taxation_customs/taxation/company_tax/transfer_pricing/forum/index_en.htm  

49 

 
 
 
                                                 
6.1.4 Effectiveness of Option B  

Objective  Effect  Explanation of impact 

++ 

Ensure 
legal 
certainty 

Option  B  implements  mandatory  binding  arbitration  by  way  of  a 
directive.  The  scope  of  DTDRM  with  mandatory  arbitration  extended 
beyond  the  issues  covered  by  the  EU  AC  and  be  extended  all  cross-
border situations subject to double taxation of business profits.  

The  nature  of  the  instrument  as  an  EU  directive  will  ensure  that  it  is 
actually followed in MSs' practice.  

A  key  aspect  of  option  B  is  to  ensure  that  DTDRM  in  the  EU  are 
enforceable by giving the taxpayer the right to have action or non-action 
of  a  MS  reviewed  by  its  domestic  court  by  way  of  implementing  a 
default  fast-track  enforcement  mechanism.  This  access  to  court  will 
ensure legal certainty for all stakeholders, i.e. it ensures an obligation to 
resolve double taxation disputes but only in those cases where the court 
considers it justified, and ensured by the competent courts of each MS 
for cases of denied access or delayed procedure 

The taxpayer will also have the possibility of having an explicit denial 
of  access  to  DTDRM  reviewed  by  a  court.  The  fact  that  taxpayers  are 
notified of milestones and key steps of the procedure combined with a 
possibility of review by the domestic court will ensure that cases are not 
delayed or blocked for an unjustified reason. This certainty of having a 
dispute  resolved  within  an  appropriate  time  frame  will  make  it  less 
likely  that  taxpayers  will  renounce  their  right  to  initiate  a  MAP 
procedure for an audit settlement (implicit denial).     

As  option  B  refers  to  the  existing  conflict  rules  MS  DTC  it  creates 
converging  approaches  on  interpretation  of  DTCs  and  is  expected  to 
decrease the number of disputes 

Compared  to  the  baseline  scenario  the  impact  of  option  B  is  therefore 
rated with 'positive'.  

++ 

Ensure  a 
level 
playing 
field 

Under  Option  B  efficiency  will  be  increased  by  ensuring  that  the 
timelines agreed in the DTDRM are actually adhered to and by adding 
obligations for MS to take action within a certain timeframe. The nature 
of  the  instrument  as  a  directive  will  ensure  that  its  content  will  be 
followed.  

The  enforceability  mechanisms  laid  down  in  option  B  is  expected  to 
mean  that  tax  administrations  will  be  more  inclined  to  solve  disputes 
before they reach the final stage.   

The enforceability will also ensure a homogenous uptake in the EU. The 
impact is therefore rated with 'positive' 

Ensure 

++ 

By  providing  the  possibility  to  involve  the  domestic  courts  where  the 

50 

 
 
Objective  Effect  Explanation of impact 

transparen
cy 

taxpayer  has  doubts  on  whether  the  action  or  non-action  of  the  tax 
administration  is  justified,  option  B  will  ensure  the  same  degree  of 
transparency  as  other  judicial  proceedings  at  domestic  courts.  The 
impact is therefore rated as positive.  

6.1.5 Effectiveness of Option C  

Objective  Effect  Explanation of impact 

- 

Ensure 
legal 
certainty 

As  Option  C  implements  mandatory  binding  arbitration  by  way  of  a 
directive  in  the  same  way  as  option  B  the  assessment  as  regards  the 
DTDRM of option C is the same as for option B 

Option C would, however, contain an additional set of default rules on 
how to solve the dispute between MS in substance. Whilst conflict rules 
could  make  sense  in  a  situation  where  there  are  no  conflict  rules 
between 2 MS already (e.g. in case where there is no DTC as e.g. at the 
time  of  the  1976  Arbitration  Directive  proposal)  the  situation  today  is 
that  in  the  EU,  bilateral  relationships  between  MS  are  already  nearly 
100 % covered by conflict rules in the form of DTC (broadly following 
the  OECD  MTC  but  also  to  cover  specific  features  in  Member  States 
bilateral relations).  

Option C would create an additional layer of conflict rules. There is the 
risk that this additional layer of conflict rules would create differences 
and inconsistencies, which could be exploited by taxpayers and Member 
States.  Another  question  which  arises  with  these  additional  conflict 
rules is whether MS would have to change their bilateral agreements, a 
very sensitive issue because it touches on questions of sovereignty. 

The  risk  of  competing  conflict  rules  with  a  risk  that  stakeholders 
arbitrate  between  them  may  even  exceed  the  potential  benefit  of  an 
improved DTDRM,  

For this reason and compared to the baseline scenario, legal certainty is 
regarded  as  reduced.  The  impact  of  option  C  is  therefore  rated  with 
'negative'.    

+ 

Ensure  a 
level 
playing 
field 

Option  C  implements  mandatory  binding  arbitration  by  way  of  a 
directive  in  the  same  way  as  option  B.  The  assessment  as  regards  the 
DTDRM  contained  in  option  C  is  therefore  generally  the  same  as  for 
option B. 

However,  the  additional  layer  of  conflict  rules  laid  down  in  Option  C 
bears the risk of causing new inefficiencies.  

The enforceability will also ensure a homogenous uptake in the EU. The 

51 

 
 
 
Objective  Effect  Explanation of impact 

impact is therefore rated with 'slightly positive' 

++ 

Ensure 
transparen
cy 

By  providing  the  possibility  to  involve  the  domestic  courts  where  the 
taxpayer  has  doubts  on  whether  the  action  of  non-action  of  the  tax 
administration  is  justified,  option  C  will  ensure  the  same  degree  of 
transparency  as  other  judicial  proceedings  in  domestic  courts.  The 
impact is therefore rated as positive. 

6.1.6 Summary of the comparison of options against the objectives  

Objectives 

Ensure 
certainty 

legal 

Ensure 
a 
level  playing 
field 

Ensure 
transparency 

Policy option  

Option 0: No policy change 

A1:  
Option 
Adopting  OECD  recommendations 
incl.  OECD  mandatory  binding 
arbitration  in  DTC  and  the  EU  AC 
Code of Conduct  

A2:  
Option 
Introduce  a  referral  to  the  CJEU  for 
mandatory  binding arbitration in  the 
DTCs 

Option 
B:  
Introduce  enforced,  effective  and 
resolution 
dispute 
broader 
mechanisms 

C:  
Option 
Comprehensive  new  EU  Legal 
instrument 

0 

0 

+ 

0 

+ 

+ 

0 

0 

+ 

++ 

++ 

++ 

- 

+ 

++ 

6.2 Comparison of efficiency 

The comparison as regards efficiency is based on three criteria, i.e. 

  cost/efforts when applying the option to double taxation disputes (costs/efforts of 

application)  
 cost of implementation for stakeholders,  

 

52 

 
 
 
 
 

timing needed for agreeing on the option at EU level 

The  assessment  of  costs  and  efforts  for  application  and  implementation  of  the  options 
will determine whether different options are proportionate to the issues at stake.  

While  it  is  possible  to  qualify  the  different  costs/efforts  associated  with  implementing 
and applying the different options as well as the time needed for agreeing on them, it is 
hardly  possible  to  quantify  them  exactly.  The  reason  is  that  costs/efforts  for  the 
implementation  of  an  administrative  or  legislative  instrument  (legislative  changes, 
reorganisation etc.) are hard to estimate and will strongly vary between Member States. 
As regards the costs/efforts connected with the application of the options it is possible to 
qualify them but not to quantify them due to  the fact they often vary depending on the 
complexity  of  issue  at  stake  and  the  amount  involved.  With  respect  to  the  time  to 
complete the initiative it can be assumed that the fewer and less complex issues are to be 
discussed, the earlier a result of the discussion can be achieved.   

As far as efficiency is concerned, the following tables assess the costs and efforts or the 
time needed for each of the options. As regards costs/efforts of application, a comparison 
is  made  with  the  baseline  scenario,  which  is  in  this  respect  reflected  by  the  status quo. 
The  rating  used  is  neutral/no  change  to  the  baseline  (0),  slightly  positive,  (+),  positive 
(++) and negative (-).  

As regards implementation and timing a comparison against the baseline scenario is not 
possible the rating used is ++ positive if for no or very low costs/efforts or short timing, 
+  for  low  costs/efforts  or  a  medium  time  frame  and  –  for  significant  costs/efforts  or  a 
substantial timeframe needed 

6.2.1 Option 0, no change 

Criteria 

Effect  Explanation of impact 

Cost/efforts 
of 
application 

Cost 
of 
implementati
on 

0 

./. 

The costs and efforts for application under the baseline scenario are 
described  in  the  section  on  the  policy  context  and  the  problem 
description 

./. 

Timing 

./. 

./. 

6.2.2 Efficiency of Option A1 

Criteria 

Effect  Explanation of impact 

Cost/efforts 
vs.  expected 
benefit 
of 
application 

0 

As  option  A1  is  largely  built  upon  the  existing  instruments  already 
functioning  in  the  EU  (the  EU  AC  and  DTC),  there  are  no  entirely 
new  costs/efforts  created  for  stakeholders.  The  costs  and  efforts 
required  for  applying  the  option  are  therefore  unchanged  regarded 

53 

 
 
 
Criteria 

Effect  Explanation of impact 

why the impact is rated as 'neutral' 

Cost 
of 
implementati
on 

+ 

As  option  A1  is  largely  built  upon  the  existing  instruments  already 
functioning  in  the  EU  (the  EU  AC  and  DTC),  there  is  no  need  to 
create an entirely new regulation for MS. MS will however have to 
amend  their  bilateral  agreements  or  the  EU  AC  as  a  multilateral 
convention.  Implementation  on  a  bilateral  level  involves  the  risk  of 
diverging approaches. Implementation costs for taxpayers are limited 
as  the  recommendation  is  built  on  the  existing  and  established 
system.  The  impact  as  regards  costs  of  implementation  is  rated  as 
'slightly positive' 

Timing 

++ 

Compared  to  other  EU  legal  instruments,  a  recommendation  is 
expected  to  be  easier  to  agree.  Efficiency  as  regards  timing  is 
therefore rated as 'positive'  

6.2.3 Efficiency of Option A2 

Criteria 

Effect  Explanation of impact 

Cost/efforts 
of 
application 

0 

Cost 
of 
implementati
on 

- 

Timing 

+ 

As regards the initiation of the procedure, the costs for taxpayers and 
tax administrations remain unchanged. Additional costs will however 
arise  with  respect  to  a  referral  of  a  case  to  the  CJEU.  These  costs 
should however be comparable to the costs arising for the arbitration 
mechanism currently set out in the AC. The efficiency of option A2 
with respect to this criteria is therefore rated as 'neutral'   

Option  A2  requires  MS  to  renegotiate  their  existing  bilateral 
agreements  or  to  agree  on  a  new  multilateral  agreement  which 
assigns the role of an arbitrator to the CJEU. The implementation is 
therefore  expected  to  create  a  significant  amount  of  costs.  For 
taxpayers  the  costs  of  implementation  will  be  rather  limited  as  the 
general  procedure,  i.e.  requesting  the  initiation  of  a  MAP  and  if  no 
agreement  is  reached,  referring the case  to  an  arbitration  body  does 
not change. An additional point to consider under this option are the 
costs  which  will  arise  for  putting  the  CJEU  in  a  position  to  act  as 
arbitrator  and  to  cope  with  the  high  caseload  expected.  The 
efficiency  of  option  A2  with  respect  to  this  criteria  is  rated  as 
'negative'   

Compared  to  other  EU  legal  instruments,  a  recommendation  is 
expected  to  be  easier  to  agree.  As  the  system  suggested  is  new, 
agreement  will  have  to  be  reached  on  the  exact  functioning.  In 
addition, time will be needed to put the CJEU in a position to act as 
an  arbitrator.  Efficiency  as  regards timing  is  therefore  rated as  only 
'slightly positive' 

54 

 
 
 
 
6.2.4 Efficiency of Option B  

Criteria 

Effect  Explanation of impact 

Cost/efforts 
of 
application 

0 

of 
Cost 
implementati
on 

+ 

Timing 

+ 

As  regards  the  costs  for  initiation  of  the  procedure,  the  costs  and 
efforts for tax administrations and taxpayers remain unchanged. The 
same applies for cases which have to go to arbitration. In cases of a 
denial of access to the procedure and in cases where the procedure is 
not followed a referral to the domestic court is envisaged. The costs 
arising when involving the court are, however, counterbalanced with 
the  costs  arising  for  tax  administrations  in  case  of  long  lasting 
procedures  and  double  taxation  remaining.  In  comparison  with  the 
baseline scenario the option is therefore rated as neutral 

Under option B MS would be required to provide access to the court 
in case of denial of access or doubts on the correct application of a 
DTDRM. While such procedures are already practice in some MS it 
would  have  to  be  implemented  by  other  MS  and  therefore  create 
costs  for  implementation.  The  same  applies  with  respect  to  the 
referral of the case to the appointing authority set out under option B. 
Although  such  a  system  is  known  in  other  areas  it  would  be  rather 
new  in  the  context  of  DTDRM  and  would  cause  costs/efforts  for 
implementation.  As  regards  the  establishment  of  the  appointing 
authority, most of its tasks like maintaining the list of arbitrators and 
the CVs are already done at a central level. The task of appointing an 
arbitrator from a list would have to be added but would be of a rather 
limited  nature.  For  this  reason  the  costs/efforts  for  implementation 
are rated as 'slightly positive'.     

Generally,  a  directive  is  expected  to  be  more  difficult  and  time 
consuming to agree. However, given that the procedure in option B 
builds up on existing systems like the AC is expected to reduce the 
time expected for its agreement. The time needed is therefore rated as 
'slightly positive'.    

6.2.5 Efficiency of Option C  

Criteria 

Effect  Explanation of impact 

Cost/efforts 
of 
application 

- 

As  regards  the  costs  and  efforts  needed  for  applying  the  DTDRM 
itself,  the  assessment  of  option  C  is  equal  to  option  B  above. 
However,  option  C  sets  out  an  additional  layer  of  conflict  rules. 
while  these  conflict  rules  would  be  beneficial  in  a  situation  where 
there  are  no  conflict  rules  yet,  they  are  expected  to  be  detrimental 
when there are already conflict rules as it is the case in the EU where 
nearly  all  bilateral  relationships  are  covered  by  DTCs.  MS  and 
taxpayers  would  have  to  coordinate  these  different  sets  of  rules 
which  would  cause  additional  and  unnecessary  costs  and  efforts  by 
all stakeholders. For this reason the option is assessed as 'negative' in 
comparison to the baseline scenario.  

55 

 
 
 
Criteria 

Effect  Explanation of impact 

Cost  /efforts 
of 
implementati
on 

Timing 

- 

- 

As  regards  the  implementation  of  the  procedure  for  dispute 
resolution the assessment of option C is equal to option B. However, 
the implementation of the conflict rules laid down in option C would 
create additional costs of implementation. In addition MS may have 
to renegotiate and adjust their bilateral agreements to align them with 
the  new  conflict  rules.  Given  the  costs  and  efforts  needed  for 
implementing the option it is rated as 'negative'.   

The  assessment  as  regards  the  procedure  for  solving  a  dispute  is 
equal to option B. However, it is expected that the development and 
agreement  of  complex  substance  based  conflict  rule  will  take 
considerable time. The time needed is therefore rated as 'negative'.    

6.2.6 Summary 

Objectives 

Policy option  

Cost/efforts 
of application 

Cost /efforts 
of 
implementati
on 

Timing 

Option 0: No policy change 

Option A1:  
Adopting OECD recommendations incl. 
OECD mandatory binding arbitration in 
DTC and the EU AC Code of Conduct  

Option A2:  
Introduce a referral to the CJEU for 
mandatory binding arbitration in the DTCs 

Option B:  
Introduce enforced, effective and broader 
dispute resolution mechanisms 

Option C:  
Comprehensive new EU Legal instrument 

0 

0 

0 

0 

- 

./. 

+ 

- 

+ 

- 

./. 

++ 

+ 

+ 

- 

6.3  Coherence  with  the  Commission's  overall  objectives  but  also  with  the 
international developments 

All options go hand in hand with the OECD's Action Plan on Base Erosion and Profit 
Shifting (BEPS), and in particular Action 14 on improving dispute resolution 

56 

 
 
 
 
 
 
 
mechanism. All options are compatible with these developments and complementing the 
OECD works. All options are assessed as 'positive'. 

As regards coherence with the Commissions objectives, all options are complementing 
the ongoing Commission initiative on Anti-Tax Avoidance Package (ATAP) and the 
Common Consolidated Corporate Tax Base (CCCTB) and are therefore assessed as 
'positive' 

All options will also be in line with the Charter of Fundamental Rights, in particular 
concerning protection of right to property (Article 17) and right to an effective remedy 
(Article 47)142.  

6.4 Comparison of options (summary) 

Criteria 

Effectiveness  Efficiency  Coherence 

Policy option  

Baseline scenario: No policy change 

Option A1:  
Adopting OECD recommendations incl. 
OECD mandatory binding arbitration in DTC 
and the EU AC Code of Conduct  

Option A2:  
Introduce a referral to the CJEU for mandatory 
binding arbitration in the DTCs 

Option B:  
Introduce enforced, effective and broader 
dispute resolution mechanisms 

Option C:  
Comprehensive new EU Legal instrument 

0 

0 

+ 

++ 

+ 

0 

+ 

0 

+ 

- 

0 

++ 

++ 

++ 

++ 

6.5 Preferred Option 

The  recommendations  described  in  options  A1and  A2  would  certainly  contribute  to  an 
increased  efficiency  of  DTDRM  in  place  if  followed  by  Member  States.  However, 
experience shows that recommendations are not always followed in practice143 especially 
if  this  is  not  monitored  by  an  external  party.  Similar  considerations  apply  to  the 
recommendation  to  supplement  existing  DTDRM  in  DTC  with  mandatory  binding 
arbitration. The long duration normally encountered for (re)-negotiation of DTC leads to 

142   See Annex K for a detailed assessment of impacts on fundamental rights. 
143   See for example recommendation in 6.3 b the Code of conduct on the EU AC recommending to keep 

the taxpayer informed about the process of the procedure (COM(2009) 472 final) and NGMs 
complaint that this is often not done in practice )see paragraph 2.13 doc. JTPF/002/2013 

57 

 
 
 
 
 
 
                                                 
the  conclusion  that  the  uptake  of  mandatory  binding  arbitration  will  take  considerable 
time.  The  multilateral  instrument  currently  developed  at  the  level  of  the  OECD  with  a 
limited  number  of  States  (including  some  but  not  all  Member  States)  may  help  to 
accelerate this process but may not result in one common system but rather in bilateral 
agreements with diverging procedures. In this respect an extension of the EU AC to other 
areas  of  taxation  would  be  a  preferable  approach  as  it  would  result  in  one  common 
instrument applicable to all EU Member States. However, the impact of option A1 and 
A2 as regards enforceability would be similar to the current impact of the EU AC.144 This 
option  would  not  be  proportionate  to  the  problems  at  hand  in  a  sense  that  it  is  not 
expected to  effectively  address  the  problems  encountered, i.e.  significantly  changes  the 
situation.  

An agreement between Member States to refer to the CJEU double taxation disputes in 
which no mutual agreement can be reached may address this issue. However, the CJEU 
has  not  yet  decided  about  such  a  case  in  substance  or  as  regards  the  question  whether 
such a case would fall under the CJEU's jurisdiction. In addition, the current number of 
cases pending longer than provided for in the EU AC and the expected increase in short 
and mid-term would create a significant caseload for the CJEU. Option A2 would need to 
be  implemented  in  MS  bilateral  agreements  and  the  CJEU  would  have  to  be  put  in  a 
position to  actually  act as  an  arbitrator  and  manage  the  cases  organisationally.  While  a 
referral  to  the  CJEU  itself  would  in  general  be  proportionate  to  the  problem, 
proportionality  is  reduced  by  the  costs/efforts  required  for  the  implementation  and  the 
fact that as an EU recommendation, actual uptake by MS is not ensured.     

Option  C  appears  attractive  since  the  DTDRM  including  mandatory  binding  arbitration 
could be designed in the most efficient and effective way, access to domestic court could 
be  ensured  and  its  scope  could  cover  all  instances  where  double  taxation  should  be 
eliminated. Its nature of an EU legislative instrument would ensure a homogenous uptake 
in  the  EU.  However,  in  addition  to  the  concern  that  the  development  of  such  an 
instrument  would  probably  take  considerable  time,  i.e.  would  not  be  applicable  in  the 
short term, Option C also ignores the fact that existing DTDRM work satisfactorily in a 
significant  number  of  cases.  In  summary,  Option  C  is  considered  as  going  beyond 
what  is  actually  needed  to  achieve  the  objectives  outlined  above,  improving  the 
DTDRM  for  the  instances  obtained  where  they  do  not  work  effectively  and 
efficiency. It is therefore not proportionate to the problems encountered.  

The  preferred  option  is  Option  B.  This  Option  is  superior  to  others  because  it  would 
supplement the existing DTDRM and improve them by adding a last resort mechanism 
for  cases  in  which  Member  States  are  not  able  or  willing  to  mutually  agree  on  how  to 
solve a double taxation dispute. It respects the interest of Member States and taxpayers in 
cases  of  doubts  as  regards  the  DTDRM  by  referring  the  respective  issues  to  a  national 
court. The combination of existing DTDRM with Option B achieves a similar result as 
Option  C  but  by  use  of  a  substantially  lighter  legislative  instrument.  Moreover,  the 
arbitration procedure as suggested and modelled on the EU Arbitration Convention has 
the potential of increasing the effectiveness of the pre-arbitration procedures; the fact that 

144   See section 2.3 above 

58 

 
 
                                                 
there  is  a  mandatory  arbitration  for  the  cases  where  no  mutual  agreement  could  have 
been reached, seems to have a positive side-effect of tax authorities aiming to conclude 
the  cases  before  they  go  to  arbitration145.  A  further  and  important  aspect  is  that  the 
mechanisms set out in Option B only kick in in cases where the existing mechanisms (the 
EU AC or DTDRM in DTC) do not work as intended. All these aspects make option B 
proportionate to the problem.  

In the public consultation stakeholders regard option A1 less positive. Views on A2) and 
B are more positive and most positive for C. However, combining the views 'will fully 
meet the objective' and 'will partly meet the objective' together, the rating of option B and 
C  is  similar.  The  same  result is  achieved  when  evaluating the  responses  for  companies 
only.  

7. MONITORING AND EVALUATION  

The  Commission  will  monitor  the  implementation  of  the  policy  in  cooperation  with 
Member States. The relevant information will be gathered primarily by Member States.  

The current monitoring of the AC a the level of the EU Joint Transfer Pricing Forum will 
be extended to all cases of double taxation disputes in cross-border situation covered by 
the  new  legal  instrument  and  gathered  on  a  yearly  basis.  The  following  information 
collected will enable the Commission to assess whether the objectives are met:  

  number of initiated/ closed/ pending across the EU 
  duration of DTDRM including the reasons for not adhering to the timelines  
  number of instances where access was denied by a MS including justification 
  amounts of tax involved in cases (in general and for those who go to arbitration) 
  number of instances of arbitration requested 

As  statistical  data  is  already  collected  and  should  continue  to  be  collected  on  a  yearly 
basis, it is expected that the costs of such activity would remain unchanged for MS and 
for  the  Commission.  Annex  L  offers  a  template  to  be  used  for  collection  of  the  above 
mentioned monitoring data. 

5  years  after  the  implementation  of  the  instrument,  the  Commission  will  evaluate  the 
situation with double taxation resolution in cross-border situations for companies in the 
EU with respect to the objectives and the overall impacts on companies and the internal 
market. The following will be assessed: 

  how the number of incoming cases increased  
  whether the number of cases solved increased compared to the past 
  whether the number of cases which went to arbitration increased 
  whether and how the number of cases taking longer than 2 years for reasons not 

provided for in the instrument is reduced significantly (50%)  

145   OECD BEPS Action 14 – Public Discussion contributions, p. 24; 

59 

 
 
                                                 
In  this  context,  data  will  be  collected  from  business  on  their  actual  cases  of  double 
taxation  through  Commission  expert  groups  or  similar  consultation.  The  data  collected 
from stakeholders will be mainly information which is not possible to be collected from 
MS  (e.g.  in  how  many  cases  no  remedies  were  taken).  The  evaluation  will  consider 
international  multilateral  developments  in  the area  of  dispute  resolution,  for  instance  at 
the level of the OECD146 or the UN147.    

146   OECD BEPS Action 14 "Making dispute resolution more effective" and follow up action.  
147   UN Tax Committee (2015) 

60 

 
 
 
                                                 
8. GLOSSARY 

Aggressive tax 
planning (see also: Tax 
planning) 

APA / Advance pricing 
agreements 

In  the  Commission  Recommendation  on  aggressive  tax  planning 
(C(2012) 8806 final), aggressive tax  planning  is defined as 'taking 
advantage  of  the  technicalities  of  a  tax  system  or  of  mismatches 
between  two  or  more  tax  systems  for  the  purpose  of  reducing  tax 
liability. Aggressive tax planning can take a multitude of forms. Its 
consequences  include  double  deductions  (e.g.  the  same  loss  is 
deducted both in the state of source and residence) and double non-
taxation  (e.g.  income  which  is  not  taxed  in  the  source  state  is 
exempt in the state of residence'. 

Means  any  agreement,  communication  or  any  other  instrument  or 
action with similar effects, including one issued in the context of a 
tax  audit,  given  by,  or  on  behalf  of,  the  government  or  the  tax 
authority of one or more Member States, including any territorial or 
administrative subdivision thereof, to any person that determines in 
advance  of 
associated 
enterprises,  an  appropriate  set  of  criteria  for  the  determination  of 
the  transfer  pricing  for  those  transactions  or  determines  the 
attribution of profits to a permanent establishment. 

transactions  between 

cross-border 

Alternative Dispute 
Resolution (ADR) 

This  term  refers  to  any  means  of  settling  disputes  outside  of  the 
courtroom.  ADR  typically  includes  early  neutral  evaluation, 
negotiation, conciliation, mediation, and arbitration. 

Arbitration 

According to the OECD glossary of tax terms, this term is used for 
the  determination  of  a  dispute  by  the  judgment  of  one  or  more 
persons, called arbitrators,  who are  chosen by the parties and who 
normally do not belong to a normal court of competent jurisdiction. 
A specific clause on arbitration is provided for by the OECD Model 
Tax Convention (Treaty) under Article 25 of the said OECD Model 
Tax Convention (Treaty). 

Associated Enterprises  According  to  the  OECD  glossary  of  tax  terms,  generally 
speaking,  enterprises  are  associated  where  the  same  persons 
participate directly or independently in the management, control 
or  capital  of  both  enterprises,  i.e.  both  enterprises  are  under 
common control. 

ATAP 

on 

the  European 
Anti-Tax  Avoidance  Package,  proposed  by 
2016 
Commission 
It  is  a  package  of  actions  which  includes  legally-binding  anti-
avoidance measures necessary to reduce aggressive tax planning. It 
is part of the Action Plan on Corporate Taxation for fairer, simpler 
and more effective corporate taxation in the EU. 

January 

28 

BEPS 

Base Erosion and Profit Shifting.  

This acronym refers to tax planning strategies that exploit gaps and 
mismatches in tax rules to artificially shift profits to low or no-tax 
locations  where  there  is  little  or  no  economic  activity,  resulting  in 
little or no overall corporate tax being paid. The OECD and the EU 
have  developed  specific  actions  to  give  countries  the  tools  they 
need  to  ensure  that  profits  are  taxed  where  economic  activities 
generating  the  profits  are  performed  and  where  value  is  created, 
while  at  the  same  time  giving  enterprises  greater  certainty  by 
reducing disputes over the application of international tax rules, and 

61 

 
 
 
 
 
 
 
standardising requirements. 

Common  Consolidated 
Corporate  Tax  Base 
(CCCTB) 

This term and  acronym refer to a policy proposal of the European 
Commission  consisting  of  the  harmonization  of  the  tax  base  of 
corporations at the EU level. It also contemplates consolidation and 
apportionment of the tax base of corporate groups. 

Company,  enterprise, 
corporation, 
undertaking, 
business, firm 

entity, 

Country-By-Country 
Reporting (CBCR) 

Refers to an economic entity doing business 

A report on tax-related information that large multinational entities 
(those with consolidated revenues of at least EUR 750 million) have 
to  submit  to  the  jurisdictions  in  which  they  do  business  on  an 
annual basis.  

Corporate Income Tax 
(CIT) 

Corporate Income Tax 

/  Directive  on 

DAC 
Administrative 
Cooperation (DAC) 

Data Collection 2016 

Double Taxation 

Double Taxation 
dispute 

Direct taxes levied on the net profits of corporations (gross income 
minus  allowable  tax  reliefs)  of  enterprises.  It  also  covers  taxes 
levied on the capital gains of enterprises (source: OECD). 

Council  Directive  2011/16/EU  of  15  February  2011  on 
administrative cooperation in the field of taxation 

Consulting procedure launched by the Commission in March 2016 
repectively  with  the  EU  Joint  Transfer  Pricing  Forum  (EU  JTPF) 
and the Platform for tax good governance, two expert groups of the 
Commission,  through  a  questionnaire  and  aimed  at  collecting  data 
on the scale and impact of double taxation and direct experience on 
the current dispute resolution mechanisms 
In  the  Commission  Communication  on  Double  Taxation  in  the 
Single Market (C(2011)712 final), double taxation is defined as the 
imposition of comparable taxes by two (or more) tax jurisdictions in 
respect  of  the  same  taxable  income  or  capital.  Although  double 
taxation  can  also  occur  in  purely  domestic  situations,  in  particular 
as  far  as  it  concerns  economic  double  taxation,  this  Consultation 
focuses on cross-border situations only. 
Traditionally,  double  taxation  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. 

The term is used for an instance in which two States claim the right 
to tax a certain item of income despite the fact that there is a double 
taxation  convention  in  place.  The  term  is  used  irrespective  of 
whether the respective MS are aware of such a dispute, i.e. whether 
the affected taxpayer did inform the State (s) involved. 

DTC / Double Tax 

A  bilateral  agreement  between  two  countries  under  that  regulates 
each  countries  rights  to  taxation  on  the  income  generated  within 

62 

 
 
 
 
Convention (Treaties) 

their territory. The main objective of a DTC is to avoid the double 
taxation of persons who have income in both countries. 

DTDRM 

Double Taxation Dispute Resolution Mechanism(s) 

EU 

European Union 

EU Arbitration 
Convention, EU AC, 
AC 

The  term  "Arbitration  Convention"  shall  be  construed  hereafter  as 
the  Convention  90/436/EEC  on  the  elimination  of  double  taxation 
in  connection  with  the  adjustment  of  profits  of  associated 
enterprises,  which  is  a  multilateral  instrument  establishing  a 
procedure to resolve disputes where double taxation occurs between 
enterprises  of  different  Member  States  as  a  result  of  an  upward 
adjustment of profits of an enterprise of one Member State (transfer 
pricing and allocation of profit to Permanent Establishments (PEs)). 

FAS 

FDI 

FIN 48 

G20 

GAAP 

GDP 

IAS 

ICC 

IFRS 

IMF 

IP 

MAP 

MCAA 

MNE 

Financial Accounting Standards 

Foreign Direct Investment 

Financial  Accounting  Standards  Board  (FASB)  Interpretation  No. 
48,  i.e.  an  official  interpretation  of  United  States  accounting  rules 
that requires businesses to analyze and disclose income tax risks 

Group of twenty 

Generally Accepted Accounting Principles 

Gross Domestic Product 

International Accounting Standards 

International Chamber of Commerce 

International Financial Reporting Standards 

International Monetary Fund 

Intellectual Property 

Mutual Agreement Procedure 

Multilateral  Competent  Authority  Agreement  developed  by  the 
OECD for the automatic exchange of Country-by-Country reports 

Stands for Multinational Enterprise. In this document, the MNE  is 
deemed to be the ultimate parent company of an MNE group. 

An EU MNE is an MNE established in the EU. A non-EU MNE is 
an MNE established in a third country. 

MNE group 

Companies / entities / undertakings comprised in a group controlled 
by an MNE, which altogether form an MNE group 

An  EU  MNE  group  is  a  group  whose  ultimate  MNE  parent  is 
established  in  the  EU.  A  non-EU  MNE  group  is  a  group  whose 
ultimate MNE parent is established in a third country. 

Model Tax 

According  to  the  OECD  glossary  of  tax  terms,  a  model  tax 

63 

 
 
Conventions, MTC 
(treaties) 

Multilateral 
Instrument or 
Agreement 

Mutual Agreement 
Procedure 

NGO 

OECD 

PE /Permanent 
establishment 

Public Consultation 
2010 

convention (treaty) is designed to streamline and achieve uniformity 
in  the  allocation  of  taxing  right  between  countries  in  cross-border 
situations.  Model  tax  treaties  developed  by  OECD  and  UN  are 
widely  used  and  a  number  of  countries  have  their  own  model 
treaties. When it is referred to 'Model Tax Convention(s)' hereafter, 
it  should  be  narrowly  construed  as  the  OECD  Model  Tax 
Convention(s). 

A  written  agreement  between  three  or  more  sovereign  States 
establishing  the  rights  and  obligations  between  the  parties.  It  can 
refer  hereafter  to  a  specific  clause  in  a  multilateral  convention 
(treaty) or to the multilateral convention (treaty) itself. 

A  means  through  which  tax  administrations  consult  to  resolve 
disputes  regarding  the  application  of  double  tax  conventions.  This 
procedure,  described  and  authorized  notably  by  Article  25  of  the 
OECD  Model  Tax  Convention,  can  be  used  to  eliminate  double 
taxation that could arise from a transfer pricing adjustment. 

Non-Government Organisation 

Organisation for Economic Co-operation and Development 

A  fixed  place  of  business  through  which  the  business  of  an 
enterprise  is  wholly  or  partly  carried  on  (Article  5,  OECD  Model 
Convention on Income and on Capital). This definition is used for 
tax purposes. 

Consultation  on  Double  Tax  Conventions  and  the  Internal 
Market:  factual  examples  of  double  taxation  cases  launched 
to  30/06/2010 
by 

from  27/04/2010 

the  Commission 

Public Consultation 
2016 

Public  Consultation  on  Improving  Double  Taxation  Dispute 
the  Commission  from 
launched  by 
Resolution  Mechanisms 
16.02.2016 to 10.05.2016 

R&D 

SME 

Tax avoidance 

Tax evasion 

Research and development 

Small and Medium-sized Enterprises 

According  to  the  OECD  glossary  of  tax  terms,  tax  avoidance  is 
defined  as  the  arrangement  of  a  taxpayer’s  affairs  in  a  way  that  is 
intended  to  reduce  his  or  her  tax  liability  and  that  although  the 
arrangement  may  be  strictly  legal  is  usually  in  contradiction  with 
the intent of the law it purports to follow 

According  to  the  OECD  glossary  of  tax  terms,  tax  evasion  is 
defined as illegal arrangements  where the liability to tax is hidden 
or  ignored.  This  implies  that  the  taxpayer  pays  less  tax  than  he  or 
she  is  legally  obligated  to  pay  by  hiding  income  or  information 
from the tax authorities 

Tax 
(aggressive) 

planning 

According  to  the  OECD  glossary  of  tax  terms,  tax  planning  is  an 
arrangement of a person’s business and/or private affairs in order to 
minimize tax liability. 

Tax ruling 

A  document  which  entails  any  communication  or  any  other 
instrument  or  action  with  similar  effects,  by  or  on  behalf  of  the 

64 

 
 
 
Transfer pricing 

Member State regarding the interpretation or application of tax laws 

Transfer  pricing  refers  to  the  terms  and  conditions  surrounding 
transactions within a multi-national company. It concerns the prices 
charged  between  associated  enterprises  established  in  different 
countries for their inter-company transactions, i.e. transfer of goods 
and services. Since the prices are set by non-independent associates 
within  the  multi-national,  it  may  be  the  prices  do  not  reflect  an 
independent  market  price.  This  is  a  major  concern  for  tax 
authorities  who  worry  that  multi-national  entities  may  set  transfer 
prices on cross-border transactions to reduce taxable profits in their 
jurisdiction. 

Treaty on the 
Functioning of the 
European Union 
(TFEU) 

This term and acronym refer to one of the Treaties in which the EU 
is founded. It organises the functioning of the Union and determines 
the  areas  of,  delimitation  of,  and  arrangements  for  exercising  its 
competences 

UN 

United Nations 

UNCTAD 

United Nations Conference on Trade and Development 

UNCITRAL 

United Nations Commission on International Trade Law 

VAT 

WTO 

Value Added Tax 

World Trade Organisation 

65 

 
 
 
 
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Convention, EC Tax Review. 1: 15-33, 2: 78-95. 

Polanco L.R., International Arbitration in times of change: fairness and transparency in 
Investor-State Dispute. Proceedings of the Annual Meeting American Society of 
International Law Vol 104 2010  

PWC Global tax transparency and risk management – The new landscape promtps 
changes to operations, strategy and budgets (September 2015) 

Riza L. Taxpayers’ Lack of Standing in International Tax Dispute Resolutions: An 
Analysis Based on the Hybrid Norms of International Taxation Pace Law Review 
Volume 34 Issue 3 Summer (July) 2014 p 17 

Sidhu, P. K. (2014) Is the Mutual Agreement Procedure Past Its “Best-Before Date” and 
Does the Future of Tax Dispute Resolution Lie in Mediation and Arbitration?, Bulletin 
for International Taxation, 68, 590-605. 

UNCITRAL – United Nations Commission on International Trade Law – UNCITRAL 
Arbitration Rules (2014) – Available at : 
http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-2013/UNCITRAL-
Arbitration-Rules-2013-e.pdf 

UNCITRAL – United Nations Commission on International Trade Law – UNCITRAL 
Rules on Transparency in Treaty-based Investor-State Arbitration (2014) 

United Nations; Model Double Taxation Convention between Developed and Developing 
Countries ; United Nations Department of Economic & Social Affairs (2011) 

UN Tax Committee (2010) Report by the Subcommittee on Dispute Resolution: 
Arbitration as an Additional Mechanism to improve the mutual Agreement Procedure, 
Doc E/C 18/2010/CRP.2, New York 6 October 2010 

UN Tax Committee (2015) Secretariat Paper on Alternative Dispute Resolution in 
Taxation, United Nations Committee of Experts on International Cooperation in Tax 
Matters, Doc. E/C.18/2015/CRP.8, New York 

van Herksen M., Mulvihill P., Liebenberg J. and Shah V. The impact of BEPS on tax 
controversy, International Tax Review February 2016 

72 

 
 
Wrappe S C - Do Advance Pricing Agreements Still Make Sense? 24 Transfer Pricing 
Report 976 A 2015  

Wrappe S C - Side Effect of BEPS-Driven Changes: Hiring, Coordinating Additional 
Transfer Pricing Staff 24 Transfer Pricing Report 791 

73 

 
 
 
 
 
ANNEX A – PROCEDURAL INFORMATION  

1. Lead DG, Agenda Planning and Work Programme 

The initiative on improving double taxation dispute resolution mechanisms was prepared 
under  the  lead  of  Directorate  General  for  Taxation  and  Customs  Union.  Within  the 
Agenda  Planning  of  the  European  Commission,  the  project  is  referred  to  under  item 
2016/TAXUD/007.  In  the  Commission  Work  Programme  for  2015,  the  Commission 
committed under the header 'Deeper and Fairer Economic and Monetary Union' to set out 
an  Action  Plan  towards  a  fairer  and  efficient  Corporate  Tax  System  in  the  European 
Union  in  order  to  tackle  tax  abuse,  ensure  sustainable  revenues  and  support  a  better 
business  environment  in  the  Single  Market,  in  particular  through  improving  double 
taxation dispute resolution mechanisms.  

2. Organisation and Timing 

Work on improving double taxation dispute resolution mechanisms started in July 2015.  

An  Inter-services  Steering  Group  assisted  DG  Taxation  and  Customs  Union  in  the 
preparation  of  this  Impact  Assessment  report.  The  Steering  Group  was  set  up  on 
21/10/2015  and  included  colleagues  from  DG  Communication  Networks,  Content  and 
Technology;  DG  Competition;  DG  Economic  and  Financial  Affairs;  DG  Financial 
Stability, Financial  Services  and Capital  Markets Union;  DG Internal Market, Industry, 
Entrepreneurship and SMEs; DG Justice and Consumers; DG Research and Innovation; 
DG  Taxation  and  Customs  Union;  DG  Trade;  the  Joint  Research  Centre;  the  Legal 
Service; and the Secretariat-General. 

The Steering Group met on six occasions between September 2015 and July 2016. The 
last  meeting  of  the  Steering  Group  took  place  on  20  July  2016.  At  each  occasion,  the 
members  of  the  Steering  Group  were  given  the  opportunity  to  provide  comments  in 
writing on the draft versions of the documents presented.  

3. Consultation of the Regulatory Scrutiny Board 

The  Impact  Assessment  report  was  reviewed  by  the  Regulatory  Scrutiny  Board  on  7th 
September and received a positive opinion.  

4. External Expertise 

DG  Taxation  and  Customs  Union  used  external  expertise  to  substantiate  the  impact 
analysis  and  of  the  design  of  the  mechanisms  improving  double  taxation  dispute 
resolution.  The  advice  of  respectively  the  EU  Joint  Transfer  Pricing  Forum  (EU  JTPF) 
and  the  Platform  for  tax  good  governance,  two  expert  groups  of  the  Commission,  was 
sought in March 2016 through a questionnaire aimed at collecting data on the scale and 
impact  of  double  taxation  and  direct  experience  on  the  current  dispute  resolution 
mechanisms,  but  also,  at  updating  the  conclusions  and  analysis  of  the  study  to  identify 
and  describe  most  frequent  double  taxation  cases  in  the  internal  market  previously 
commissioned by the Commission with an external consultant (June 2013). 

74 

 
 
The  EU  JTPF  also  provided  advice  through  its  extensive  work  on  monitoring  the  EU 
Arbitration convention and its conclusions and recommendations in  its Final Report on 
Improving the functioning of the Arbitration Convention (March 2015)148.  

148   See JTPF/002/2015/EN 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/foru
m/final_report_ac_jtpf_002_2015_en_final_clean.pdf  

75 

 
 
 
                                                 
ANNEX B – STAKEHOLDER CONSULTATION  

1. Introduction 

On 17th June 2015 the Commission published an Action Plan for a Fairer and Efficient 
Corporate  Tax  System  which  proposed  5  key  areas  for  action  in  the  coming  months 
(COM (2015) 302). Improving double taxation dispute resolution mechanisms is one of 
the actions laid down in this Action Plan in order to ensure a better tax environment for 
business. 

The Commission has run an open public consultation to consult all stakeholders and offer 
interested  parties  the  possibility  to  provide  their  input  on  improving  double  taxation 
dispute resolution mechanisms. 87 participants replied to this consultation. 

2. Breakdown of Participants 

The majority of respondents were trade or business associations and companies (31% and 
22% of responses, respectively). A significant share of the replies was submitted also by 
Consultancy and law firms (16%) and from other sources (18%). NGOs and Academia 
also participated (respectively up to 7% and 5%). 

Overview responses per residence of the 
supplier 

16

14

12

10

8

6

4

2

0

a
i
r
t
s
u
A

i

m
u
g
e
B

l

Trade union

Other

Non-governmental organisation

Media

Industry association

Consultancy, law firm

Company, SME, micro-
enterprise, sole trader

Academic institution

s
u
r
p
y
C

k
r
a
m
n
e
D

d
n
a
n
i
F

l

e
c
n
a
r
F

y
n
a
m
r
e
G

y
l
a
t
I

a
t
l
a
M

d
n
a
e
r
I

l

r
e
h
t
O

d
n
a
o
P

l

l

a
g
u
t
r
o
P

i

a
n
a
m
o
R

s
d
n
a
l
r
e
h
t
e
N

i

n
a
p
S

n
e
d
e
w
S

c
i
l

b
u
p
e
R
k
a
v
o
l
S

i

m
o
d
g
n
K
d
e
t
i
n
U

A  high  share  of  responses  came  from  German  Companies  and  Industry  associations  as 
well as 'other' category (about 14%). The second largest group of responses came from 
trade/business  associations  in  Belgium  (some  being  representations  to  the  EU). 
Respondents indicating 'Other country' were located in Switzerland and in the USA. 

76 

 
 
 
 
 
16
14
12
10
8
6
4
2
0

1 

a
i
r
t
s
u
A

Country of residence 

12 

15 

9 

7 

6 

5 

3 

1  1 

3 

2 

3 

1  1  1 

s
u
r
p
y
C

k
r
a
m
n
e
D

d
n
a
n
i
F

l

e
c
n
a
r
F

y
n
a
m
r
e
G

d
n
a
e
r
I

l

y
l
a
t
I

a
t
l
a
M

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t
O

d
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a
o
P

l

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r
o
P

i

a
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a
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R

s
d
n
a
l
r
e
h
t
e
N

c
i
l

b
u
p
e
R
k
a
v
o
l
S

i

m
u
g
e
B

l

Total

5 

2 

i

n
a
p
S

n
e
d
e
w
S

9 

i

m
o
d
g
n
K
d
e
t
i
n
U

3. Analysis of responses 

3.1  State  of  play:  shortcomings  and  impact  of  the  currently  existing  double  taxation 
resolution mechanisms 

  The  vast  majority  of  respondents  considers  for  the  case  of  double  taxation 
described  in  the  public  consultation  that  within  the  European  Union  measures 
should be in place that ensure that double taxation is removed. 

  The  vast  majority  of  respondents  also  regards  the  DTDRM  in  the  EU  as  not 
sufficient  /just  as  a  starting  point  with  respect  to  scope,  enforceability  and 
efficiency  with  efficiency  being  regarded  as  the  most  positive  (25%  fully 
sufficient/a good basis). 

Do you think that the dispute resolution mechanisms currently available in the EU (e.g. DTC or AC) are 
sufficient as regards scope, enforceability and efficiency? 

77 

 
 
 
 
 
What do you think are the impacts of double taxation arising in the EU? 

As regards the impact of double taxation the vast majority of respondents regard double 
taxation as detrimental to growth, creating barriers and preventing foreign investors from 
investing  in  Member  States,  as  well  as  driving  investments  away  from  MS.  Only  very 
few respondents think that double taxation protects the economy of Member States.  

78 

 
 
 
 
 
In  addition  to  the  impacts  of  double  taxation  noted  above  many  respondents  cited 
problems  related  to  the  lack  of  certainty  and  the  complexity  of  double  taxation 
legislation. This is especially problematic for taxpayers for tax risk management.  

In  particular,  the  administrative  burden  for  both  businesses,  for  example  the  need  to 
obtain tax certificates for withholding tax purposes, and tax administrations were cited as 
a  particular  concern.  Cash  flow  problems  for  businesses  as  a  result  of  double  taxation 
were  also  highlighted.  Transfer  pricing  rules,  in  particular  the  lack  of  certainty  for 
business in setting prices between group companies, exacerbated the problems identified 
for  double  taxation.  Double  taxation  was  seen  as  distorting  competition  between 
businesses  operating  nationally  and  those  which  operate  cross-border  leading  to  a 
decrease in employment and a loss of welfare for the economy as a whole.  

The  Commission's  work  on  the  Capital  Market's  Union  to  enhance  the  Internal  Market 
was  seen  as  a  useful  vehicle  for  moving  forward  on  the  issue  of  double  taxation. 
However, one respondent noted that double non-taxation was more of a concern, and that 
existing tax rules favour companies operating internationally to the detriment of domestic 
companies. 

Some  comments  were  particularly  focused  on  complexity,  lack  of  certainty  and 
administrative burden: 

It wastes both taxpayer and government resources on unnecessary disputes having a net 
nil effect. 

Many of the challenges that tax compliant companies face in Romania  have to do with 
cash flows being blocked due to a presumption of non-compliance. As such, companies 

79 

 
 
 
may have a tendency to accept double taxation rather than spend even more money and 
many years to try to avoid it [OPAD Tax Consulting]. 

Authors  suffer  double/  multiple  taxation  as  it  is  often  impossible  to  provide  the  tax 
certificates necessary to apply for a local tax deduction or, due to application of regular 
withholding taxes, no deduction can take place [Stowarzyszenie Filmowców Polskich] 

As the EC pushes the DSM (through audiovisual (AV) & copyright policy reform), double 
taxation  currently  represents  an  administrative  burden  for  authors  and  their  collective 
management organisations, discouraging multi-territory licensing solutions and mobility 
of creators. Authors suffer double/ multiple taxation as it is often impossible to provide 
the tax certificates necessary to apply for a local tax deduction or, due to application of 
regular withholding taxes, no deduction can take place [Society of Audiovisual Authors 
– SAA]. 

We would urge the Commission and Member States to address the practical difficulties 
of withholding tax reclaim procedures which can lead to investors suffering the effects of 
double taxation and pose a barrier to investment. We are supportive of a relief at source 
system. We note the Commission’s work in this area as part of the 2015 Action Plan on 
Capital  Markets  Union  (CMU).  We  would  be  happy  to  provide  any  input  to  this  work-
stream if helpful [Association for Financial Markets in Europe] 

Cases  of  double  taxation  are  currently  on  the  rise,  due  to,  amongst  others,  the 
uncertainty created by interpretation and implementation of international guidelines and 
the  plethora  of  available  information,  leading  to  an  increasing  number  of  taxation 
disputes.  This  has  a  negative  impact  on  global  growth  and  reduces  cross  border  trade 
and investment [International Chamber of Commerce] 

Member  States  often  claim  that  the  EU  Arbitration  Convention  is  very  effective  but 
corporates  actually  face  a  lot  of  hurdles  in  practice.  Some  MS  (e.g.  Italy)  make  the 
corporates  sign  a  declaration  that  they  cannot  approach  the  corresponding  country 
under  this  instrument  in  case  of  an  increase  in  profit  due  to  a  primary  adjustment 
[Transfer Pricing Associates] 

Accounting  and  cash  tax  impact  as  a  result  of  paying  taxes  in  advance  of  resolution. 
Otherwise, taxpayers face risks of interest charges and penalties being levied  

Some other comments related to uncertainties and legal insecurity for businesses: 

Enterprises  acting  in  more  than  one  country  have  relevant  administrative  expenses  in 
order  to  comply  with  tax  legislations  have  effect  on  a  cross  border  basis  (i.e.  transfer 
pricing  procedure,  allocation  of  profits  and  costs  among  the  mother  company  and  its 
foreign  branches,  etc.).  Such  procedural  duties  and  the  related  administrative  costs  do 
not  necessary  involve  an  effective  and  consistent  reduction  of  potential  tax  liabilities 
connected with double taxation issues involving strong limitations [University of Parma - 
Dipartimento di Giurisprudenza] 

The lack of dispute resolution creates uncertainty for business as no indication on how 
the situation should be fiscally treated is given. In the TP area, the absence of agreement 
between  States  (on  the  method  or  on  the  amount)  maintains  the  taxpayer  in  total  legal 

80 

 
 
insecurity  on  the  way  to  correctly  deal  with  the  transaction  in  the  future.  Placing  the 
burden of responsibility and the threat of a future tax adjustment of the company because 
of  State's  disagreement  is  not  acceptable  [MEDEF  (Mouvement  des  entreprises  de 
France] 

Various other aspects were also commented: 

The supposed dangers of double taxation for corporations have been greatly exaggerated 
to  the  point  where  international  tax  rules  have  come  to  facilitate  double  non-taxation, 
which distorts competition, damaging domestic enterprises and undermining taxation, to 
the detriment of growth and jobs [BEPS Monitoring Group] 

Double taxation has a negative impact on purchasing power since it ultimately leads to 
increased price levels [EY] 

Double Taxation may also lead to economic distortions between businesses of different 
size and place of trading [DIE FAMILIENUNTERNEHMER - ASU e.V]. 

Double  taxation  leads  to  reduced  employment  and  lower  Welfare  [Confederation  of 
Swedish Enterprise] 

Allows tax competition between MS and create a tax obstacle within the Single Market, 
since  the  countries  with  an  efficient  system  on  solving  tax  conflicts  would  be  in  better 
conditions to compete for international investments [Fernando Serrano Antón] 

We  are  concerned  with  the  impact  of  double  taxation  on  Risk  Management  activity. 
Managing tax risk has always been a point of concern to us. With the implementation of 
the new measures, we foresee a potential increase of double taxation and on the number 
of  tax  disputes.  TP  related  disputes  will  also  most  likely  increase  as  well.  The  current 
insufficiency  of  dispute  resolution  mechanisms  is  self-evident,  and  it  often  acts  as  a 
deterrent  for  our  foreign  investment  decisions  [International  Tax  Committee  of  the 
International Association of Financial Executives Institutes – IAFEI]. 

Double taxation is also detrimental to the competitiveness of multinational companies in 
the EU [Insurance Europe]. 

3.2 Views on the objectives 

There is generally a broad support for most of the objectives suggested in the 
consultation. A lower support is encountered for safeguarding the financial interest of the 
Member States and a strongest support is encountered timely resolution, business 
friendly environment, and ensuring access to the mechanism as well as predictability. 

81 

 
 
 
 
 
Do you want the EU to pursue the following objectives to achieve effective elimination of double taxation 
for business transactions? 

Many respondents noted that whilst they understood the importance of transparency the 
rights of businesses to maintain commercial confidentiality should be preserved, and that 
their business interests should not be jeopardised. A couple of respondents noted that the 
initiative  should  also  take  into  account  residents  of  third  countries  which,  due  to 
globalisation,  may  well  become  a  more  important  feature  in  the  future  for  business 
arrangements.  Dispute  resolution  mechanisms  were  seen  as  useful  for  other  taxes  like 
VAT, and the work by the Commission on the Common Corporate Consolidated tax base 
was  regarded  by  some  as  being  able  to  address the  issue  of  double  taxation  in  the  EU. 
Member States were requested to improve their Mutual Agreements Procedures (MAP), 
and  that  taxpayers  should  have  the  opportunity  to  become  actively  involved  in  the 
process. The establishment of a Permanent Arbitration Court, which would develop the 
standard  rules  and  practice  for  efficient  resolution  of  tax  disputes,  was  cited  by  one 
respondent as a solution. Harmonisation of Double Taxation Treaties was also suggested 
as a way forward. 

Transparency 

We can see the benefits of transparency by publishing main parts of the double taxation 
dispute  cases/decisions  where  the  decision  relates  to  a  legal  interpretation  of  a  treaty 
matter.  This  would  contribute  to  a  better  understanding  of  the  dispute  resolution 
processes. However, it would be crucial to ensure that commercial confidentiality would 
be preserved when publishing any data publicly [Confederation of British Industry]. 

82 

 
 
 
 
 
 
 
Reduction in the number of cross border disputes once a body of cases and decisions is 
available  -  provided  that  confidentiality  is  maintained  for  commercially  sensitive 
information when cases and decisions are published. Safeguarding of taxpayer's interest 
by the suspension of collection of taxes which would result in double taxation, whilst the 
Member States seek to resolve the issues. 

NB:  *Ensuring  transparency  by  publishing  main  parts  of  the  double  taxation  dispute 
cases/decisions": Without having an in-depth understanding or more details of how this 
would be done in practice, EBIT Members reply here with: "completely disagree". Other 
objectives:  The  EU  should  lead  the  way  toward  a  world-wide  effective  double  taxation 
mechanism  and  could  develop  a  comprehensive  legal  tool  to  resolve  double  taxation 
disputes:  yet  the  challenges  of  this  should  not  be  underestimated!  [European  Business 
Initiative on Taxation (EBIT)] 

With respect to above: (i) transparency of dispute cases/decisions should be guided by a 
norm framework for  publication and at  same time not  create a (publication) barrier  to 
enter  the  dispute  resolution  process;  (ii)  "tax  deemed  due"  appears  different  from  tax 
due. Hence disagreed [International Chamber of Commerce] 

With regard to the publishing of tax cases and decisions, this should only be done on the 
basis  that  the  identity  of  the  parties  involved  remains  anonymous.  Additionally,  with 
regard to improving the collection of tax this should only relate to final agreed tax only 
and not the disputed amount. 

With  respect  to  the  publishing  of  decisions  I  would  agree  but  only  on  an  anonymous 
basis due to the need for commercial confidentiality. 

Residents of third countries 

Extending agreements to apply in cases where the beneficial owner is resident in a third 
country. • There is a need to update of existing treaties on non-double taxation as they do 
not  include  modern  form  of  businesses.  In  practice  in  different  Member  States  exist 
different Tax certificates and not all Tax Authorities accept documents from other M.S. 
there is a need of cooperation between M.S [Stowarzyszenie Filmowców Polskich]. 

In many cases only EU Member States will be involved, however, situations will arise - 
potentially increasing in number - which also (in part) involve non-EU Member States. 
Preferably  in  OECD-context  a  principle  is  created  for  the  commencement  of  legal 
proceedings,  i.e.  an  OECD  arbitration  convention  that  States  can  sign  up  to.  The 
arbitration must be mandatory and binding on those States that sign up [de Nederlandse 
Orde van Belastingadviseurs (the Dutch Association of Tax Advisers) (NOB)]. 

Investment 

Efficiency  and  low  costs  for  tax  authorities,  whilst  clearly  desirable,  are  not  the  prime 
focus of dispute resolution and alleviation of double taxation mechanisms. Consequences 

83 

 
 
 
 
 
 
 
 
for  investment,  growth  and  jobs  of  an  uncompetitive,  costly and  uncertain  environment 
are likely to have an impact on future tax receipts in any event. Transparency is helpful 
only  where  the  matter  relates  to  legal  interpretation  and  has  precedent  value. 
Confidentiality of commercial information must be maintained [Deloitte LLP] 

To create jobs by reducing costs to enterprises [EUROCHAMBRES – The Association 
of European Chambers of Commerce and Industry] 

The elimination of double taxation for business transactions promotes and enhances the 
internal market [Confederation of Swedish Enterprises] 

VAT 

Another objective is the harmonisation of the dispute resolution process across all types 
of taxes – especially with indirect taxes, in line with the VAT Action Plan. Regarding the 
above  responses:  -  Main  elements  of  double  tax  decisions  should  be  published 
anonymously  –  a  precedent  for  this  exists  in  the  area  of  indirect  tax  -  Safeguarding 
financial interests of Member States should not be a major objective - this could lead to 
some Member States choosing to do nothing to save costs and protect their tax base [The 
Federation of European Accountants]. 

CCTB 

Safeguarding competitiveness of EU companies by implementing a swift (less than one-
year) and red-tape-free procedure; promote the common consolidated corporate tax base 
(CCCTB) [Jordi BONABOSCH] 

By  far  the  best  approach  would  be  to  minimise  the  possibility  of  conflicts  and  double 
taxation  by  adopting  a  common  consolidated  corporate  tax  base  with  consolidation 
[BEPS Monitoring Group]. 

Other 

Updating  existing  DTCs  to  include  modern  forms  of  business;  •  Predictable  taxation 
systems and tax policy in Member States (MS) & the Single Market; • Harmonising rates, 
required  documentation  &  conditions  attached  to  double  taxation  relief  treaties;  • 
Harmonising  implementation  &  interpretation  of  existing  OECD  MTCs  e.g.  some  MS 
consider CMOs as beneficial owners of royalties & others don’t; • Extending agreements 
to  apply  in  cases  where  the  beneficial  owner  is  resident  in  a  third  country  [Society  of 
Audiovisual Authors – SAA] 

Improving  collection  is  not  an  issue  of  the  elimination  double  taxation  but  relates  to 
recovery  of  tax.  The  term  ‘tax  deemed  due’  is  unclear:  both  tax  authorities  would 
consider  their  taxation  correct  and  tax  deemed  due.  Under  the  2015  CoC  on  the  AC 
suspension of tax collection for cross-border dispute procedures can be obtained under 

84 

 
 
 
 
 
 
 
 
 
the  same  conditions  as  under  domestic  proceedings.  Such  suspension  should  not  be 
linked to domestic rules but generalized and embedded in the text of a multilateral treaty 
[PwC International on behalf of the Network Member Firms of PwC ("PwC") 

Ensure  that  in  bona  fide  cases  the  resolution  of  the  dispute  is  "interest  neutral"  for 
taxpayer [EY] 

All OECD countries have agreed to improve their MAP regimes on foot of BEPS Action 
14 and the main objective of the EU should be to support Member States in this process. 
This will require an investment in MAP resources so it is difficult to see how reducing the 
cost  of  tax  administrations  would  be  a  feasible  objective  of  the  EU.  Another  objective 
should be to ensure more taxpayer involvement in MAPs, e.g. updating taxpayers on the 
progress of MAPs and allowing them to compel arbitration [Irish Tax Institute] 

Ensuring taxpayers rights by establishing a Flexible Multi-Tier Dispute Resolution which 
offers various procedures for various kinds of disputes ("tailor made dispute resolution") 
and uses Mutual Agreement Procedures (MAP) as one of the first steps of the procedure. 
Involvement of the taxpayer in the process of the MAP and Arbitration  

-  enable  taxpayers  to  play  an  active  role  in  the  dispute  resolution  process  (right  to 
initiate  the  proceedings,  submit  evidence)  -  develop  a  mechanism  of  fair  imposition  of 
penalties  that  would  mitigate  the  detrimental  effect  of  double  taxation  on  taxpayers  - 
support  the  establishment  of  a  permanent  arbitration  court  that  would  develop  the 
standard  rules  and  practice  for  efficient  resolution  of  tax  disputes  (see  attached  CFE 
Opinion  Statement  FC  4f/2016  on  BEPS  Action  14)  [CFE  (Confédération  Fiscale 
Européenne)]. 

3.3 Views on the kind of Action 

Respondents  generally  see  a  need  for  taking  action.  As  regards  the  kind  of  action,  the 
vast  majority  of  respondents  see  a  need  action  as  regards  guaranteeing  elimination  of 
double taxation, compatibility with international developments and stronger role for the 
taxpayer.  

There is also more support for building the EU action on mechanisms already available 
than for a new comprehensive legal tool. Very few respondents think that the EU should 
limit itself to encouraging MS to adopt mechanisms in their bilateral relationships. 

Do you want the EU to pursue the following directions? 

85 

 
 
 
 
EU Action 

Compatible with internat mechanisms

A new comprehensive legal tool

Guarantee elimination of DT

Stronger role of taxpayer

Build on existing in the EU

Limit to encourage DTC

No need for action

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

No need
for action

Limit to
encourage
DTC

Build on
existing in
the EU

Stronger
role of
taxpayer

Guarantee
elimination
of DT

A new
comprehen
sive legal
tool

completely agree

somewhat agree

no opinion

somewhat disagree

completely disagree

don't know

1

2

1

9

74

0

4

5

6

26

46

0

45

31

2

7

2

0

60

18

4

3

2

0

73

11

0

1

2

0

36

29

8

9

4

1

Compatible
with
internat
mechanism
s
59

19

6

1

1

1

Deterrents  were  suggested  as  a  way  to  prevent  Member  States  from  benefiting  from 
delaying  a  favourable  resolution.  The  need  to  align  the  work  of  the  Commission  with 
international standards, in particular, the work of the OECD BEPS project for Action 14 
Dispute  Resolution  Mechanisms,  was  suggested  by  respondents.  The  role  of  the 
Commission's  Joint  Transfer  Pricing  Forum  was  seen  as  providing  a  useful  role  in 
monitoring  the  resolution  of  double  taxation  cases.  Other  suggestions  for  actions 
included:  Central  contact  points  should  exist  instead  of  requiring  applicants  to  deal 
directly with the tax authorities in both the home country and other countries; quarterly 
reporting  obligation  from  Member  States  to  European  Commission  on  the  type  and/or 
number of disputes; and an escalation mechanism for cases that do not get resolved under 
the current available dispute resolution mechanisms to be transferred to an independent 
forum which makes a decision to resolve double taxation. 

In more details, the above-mentioned aspects were commented as follows: 

Deterrents  

Deterrents should be put in place to prevent tax authorities from benefitting from double 
taxation  in  cases  where  delaying  a  favourable  resolution  benefits  them  [OPAD  Tax 
Consulting] 

Dispute resolution 

86 

 
 
 
1.  Enhance  dispute  resolution  measures  for  other  non-TP  aspects;  2.Ensure  any 
measures'  compatibility  with  BEPS;  3.Encourage  Member  States  to  sign  up  to  the 
OECD's mandatory binding arbitration process [Confederation of British Industry] 

The  EU  should  ensure  that  Member  States  do  not  seek  to  deny  access  to  dispute 
resolution mechanisms  

Transfer prices 

The  EUJTPF's  work  should  be  completed  by  a  forum  of  competent  authorities 
responsible for annually publishing the way double taxation is solved (number of cases, 
time for cases, countries involved) [MEDEF (Mouvement des entreprises de France)] 

International 

The  EU  should  implement  a  legal  tool  for  dispute  resolution  which  is  aligned  with 
international  standards  but  tailored  to  fit  all  legal  requirements  [The  Consultative 
Committee of Accountancy Bodies-Ireland [(CCAB-I)] 

EU should play its role not only in the bilateral relationships among Members States but 
also considering EU treaty and the effect on the fundamental freedom granted also in a 
multilateral prospective [University of Parma - Dipartimento di Giurisprudenza] 

We consider that EU action must work with existing global standards (the OECD BEPS 
Action  14  recommendations),  and  should  include  all  EU  states  joining  the  mandatory 
binding arbitration process [Association for Financial Markets in Europe] 

CCTB 
Adopt  the  Common  Consolidated  Corporate  Tax  Base.  While  corporate  taxation 
continues  to  rest  on  the  independent  entity  principle  it  is  unreasonable  to  expect 
elimination of economic double taxation [BEPS Monitoring Group] 

Other 

Central contact points should exist instead of requiring applicants to deal directly with 
the tax authorities in both the home country and other countries [Society of Audiovisual 
Authors – SAA] 

Quarterly reporting obligation from Member States to EC on the type and/or number of 
disputes [Transfer Pricing Associates] 

In order to have a broader scope, the EU Action could consider as well the introduction 
of MAP and Arbitration in other tax areas in which there is a high rate of conflicts, not 
only double taxation [Fernando Serrano Antón]. 

87 

 
 
 
 
 
 
 
 
 
 
 
Allow for an escalation mechanism for cases that do not get resolved under the current 
available dispute resolution mechanisms to an independent forum that makes a decision 
that resolves double tax  

Development  of  clearing  house  system  between  EU  Member  States  with  respect  to  tax 
collection with taxpayer providing just guarantee for amount relative to rate differential 
[EY] 

3.4 Views on the Options 

As regards the options suggested, the views are less positive on option A i) [Improve the 
efficiency of bi- and multilateral instruments : following conclusions of the OECD BEPS 
Action 14 and of the EU Joint Transfer Pricing Forum on improving the functioning of 
the EU AC], positive for A ii) [Improve the efficiency of bi- and multilateral instruments 
:adopting  an  arbitration  clause  similar  to  the  one  provided  for  by  Article  25  of  the 
Austrian-German  tax  treaty]  and  B  [Enforced,  effective  and  broader  dispute  resolution 
mechanisms], most positive for C [A comprehensive new EU legal instrument]. However, 
combining  the  views  'will  fully  meet  the  objective'  and  'will  partly  meet  the  objective' 
together, the rating is similar.  

When it comes to the question on the way forward, half of the respondents regard Option 
C as fully appropriate for application in other areas of income taxation. Low support is 
encountered for Options A i) and A ii). For option B most respondents view it as partly 
appropriate for a broader application. 

In  your  opinion  would  Option  Ai),  Option  Aii),  Option  B  and  Option  C  meet  the  general  objectives  of 
scope, enforceability and efficiency? 

Option A (i) 

Efficiency

Enforceability

Scope

0%

20%

40%

60%

80%

100%

Scope

Enforceability

Efficiency

Will fully meet the
objective

Will partly meet the
objective

Will not meet the
objective

No opinion

I don't know

9

48

25

2

3

8

38

37

2

2

8

38

37

2

2

88 

 
 
 
 
 
 
Option A (ii) 

Efficiency

Enforceability

Scope

0%

20%

40%

60%

80%

100%

Scope

Enforceability

Efficiency

Will fully meet the
objective

Will partly meet the
objective

Will not meet the
objective

No opinion

I don't know

16

53

10

4

4

24

46

11

3

3

32

43

9

2

1

Option B 

Efficiency

Enforceability

Scope

0%

20%

40%

60%

80%

100%

Scope

Enforceability

Efficiency

Will fully meet the
objective

Will partly meet the
objective

Will not meet the
objective

No opinion

I don't know

31

42

10

3

1

32

43

9

2

1

22

50

12

2

1

89 

 
 
 
 
Option C 

Efficiency

Enforceability

Scope

0%

20%

40%

60%

80%

100%

Scope

Enforceability

Efficiency

Will fully meet the
objective

Will partly meet the
objective

Will not meet the
objective

No opinion

I don't know

52

25

5

2

3

52

22

8

2

3

43

27

9

3

5

Conclusion and views on the way forward 

As illustrated by the diagram below, in conclusion, views expressed were most positives 
for B and C than for the options A. 

In your opinion would the dispute resolution mechanisms discussed [in section 3.4 above] be appropriate 
for double taxation disputes arising in other areas of income taxation e.g. personal income tax (cost benefit 
ratio)? 

90 

 
 
 
 
 
 
 
 
 
Application beyond business 

Option C)

Option B)

Option A ii)

Option A i)

0%

20%

40%

60%

80%

100%

Fully appropriate

Partly appopriate

I have no opinion

Not appropriate

I don't know

Option A i)
5

Option A ii)
10

Option B)
26

Option C)
42

36

7

32

7

47

7

17

6

41

6

9

5

26

6

5

8

91 

 
 
 
 
 
 
ANNEX C - WHO IS AFFECTED BY THE INITIATIVE AND HOW 

The  objective  of  this  annex  is  to  set  out  the  practical  implications  of  the  initiative  for 
different types of companies and for national tax administrations.  

The initiative directly affects companies who are subject to corporate income tax on their 
business profit.  

Large companies would be placed in a situation similar to the one currently existing at 
the  Mutual  Agreement  Procedure  Stage  but  will  be  in  a  position  to  submit  all  cases  of 
double  taxation  to  the  advisory  commission  under  the  arbitration  phase.  This  may 
involve some additional costs in terms of procedure, both to prepare the cases which can 
be fact intensive and possibly to initiate procedures with the National Court in cases of 
denial  of  access  to  the  arbitration  or  blocked  procedure  in  the  second  face.  However, 
given the obligation of results the large companies will be in a position to outweigh such 
additional costs with the benefit of removing the double taxation at stake, which will be 
defined  with  full  certainty  under  the  proposal.  In  all  cases,  recourse  to  MAP  and 
arbitration is not  mandatory for the taxpayers and remain an option for which they can 
arbitrate in terms of costs and benefit.  

SMEs  are  placed  in  the  same  position  as  large companies.  The  level  of  additional  cost 
potentially incurred in case of referral to the Advisory commission in the arbitration cost 
would  create  a  burden  which  would  be  proportionally  higher  for  SMEs  then  for  large 
companies. However, the design of the proposal in terms of timeliness of the procedure, 
possibility  of  a  fast  track  referral  with  the  National  Court  and  Alternative  Dispute 
Resolution procedures which can be opted for by Member States in the second phase is 
such  that  having  recourse  to  this  procedure  would  be  cost  efficient  for  SMEs.  Those 
among these  companies that consider the possibility to submit their cases  to  arbitration 
would  have  to  conduct  a  cost-benefit  assessment  to  decide  whether  they  would  benefit 
from applying it.   

Tax administrations will incur costs for implementing the new system, notably on staff  
resource  allocation  or  hiring  and  staff  training.  Eventually,  the  implementation  of  the 
new system should in the medium term ensure a more consistent and smooth processing 
of arbitration cases with the EU with less duplication of tax litigations (both at the level 
of the MAP and arbitration procedures and before domestic courts) and shall also lead to 
increase know-how and mastery of fact-intensive and complex cross border tax cases as 
well  as  some  converging  approaches  on  key  interpretation  issues.  Transaction  costs 
linked to the need to renegotiation of double tax treaties in cases of recurring unsolved 
disputes would also decrease in the medium and long term. 

92 

 
 
 
 
 
 
ANNEX D - ESTIMATION OF DOUBLE TAXATION DISPUTES FOR CORPORATE TAXPAYERS  

Overview  of  cases  pending  under  the  EU  Arbitration  Convention  at 
year end and estimation of pending MAP cases under DTC and future 
development 

1. Development of cases under the EU Arbitration Convention 

The basis for the calculation is the statistics on cases pending under the EU Arbitration 
Convention as reported by MS on a yearly basis from 2004 until 2014149. Numbers for 
the end of 2015 are not yet available.  

The reliability of this self-reported data in the statistics is increased by the fact that MS 
report bilateral cases from their perspective only which is then matched with the cases by 
the  other MS  involved in  the case. The  numbers  reported are  therefore considered as  a 
reliable basis.  

There  is  a  continuous  increase  of  pending  cases.  Comparing  the  increase  of  total  cases 
with  cases  on  MS  level  shows  a  similar  development.  The  increase  is  therefore  is  not 
grounded in the fact that new MS joined the EU.  

A similar development is encountered at OECD level:  

Based  on  the  historical  data  an  extrapolation  is  made  assuming  that  this  increase  will 
continue  in  the  future  if  no  measures  are  taken  (baseline  scenario).  The  following 
observations confirm the assumption of an increase of cases pending under the AC:  

  The  responses  of  stakeholders  to  the  2016  data  collection150  where  64%  of  the 

 

respondents expect a significant increase of instances of double taxation 
there is a trend of a significant increase of audits in the field of transfer pricing 
with  an  expected  increase  of  tax  reassessments151  Given  the  bilateral  nature  of 
transfer  pricing,  the  adjustment  of  the  prices  for  one  company  (primary 
adjustment) automatically results in the need for a corresponding adjustment for 
the other company which is not done automatically and therefore causes a double 
taxation dispute.  

149 

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

forum/jtpf0082015acstatistics2014.pdf  

150   See section 5.3 of the 2016 data collection, Annex H 
151   See e.g.  

Germany: PwC Study "Betriebsprüfungen 2015" (tax audits 2015 translated) 
http://www.pwc.de/de/pressemitteilungen/2015/in-grossunternehmen-fuehrt-nahezu-jede-
betriebspruefung-zu-mehrsteuern.html  

Denmark announced that for 2016 (as in 2015), its efforts would focus on transfer pricing cases involving: 

(1) goods and services; (2) intangibles; and (3) financial transactions. 
http://www.skm.dk/media/1340763/aktuelle-skattetal_transfer-pricing_020516.pdf  

93 

Inventory at year endyear 20042005200620072008200920102011201220132014cases pending107140148186198244294370428492640 
 
 
                                                 
 
 
  The views expressed in various articles152  

Starting from 107 cases in 2004 to 640 cases at the end of 2014, a linear increase would 
result  in  830  cases  at  the  end  of  2020.  Assuming  a  growth  trend  based  on  historical 
figures with the assumption of a further increase would result in 1690 cases by the end of 
2020.  

  The views expressed in various articles153  

Starting from 107 cases in 2004 to 640 cases at the end of 2014, a linear increase would 
result  in  830  cases  at  the  end  of  2020.  Assuming  a  growth  trend  based  on  historical 
figures with the assumption of a further increase would result in 1690 cases by the end of 
2020.  

For this impact assessment and under the assumption that no action is taken to improve 
the  situation,  a  moderate  growth  trend  is  assumed  by  taking  the  mid-point  between  a 
linear  increase  and  the  growth  trend,  which  would  result  in  a  working  assumption  of 
around 1200 cases pending at the end of 2020.   

There are several reasons for the assumed increasing number of pending cases:  

 

the gap between the initiated cases and completed cases have been systematically 
growing in the past years  

152   See e.g. Martens (2015) or Allen&Overy,"(2014) 

http://www.allenovery.com/SiteCollectionDocuments/Multinational-tax-practices-face-growing-
scrutiny.pdf  

153   See e.g. Jan Martens "France and BEPS: A Changing Transfer Pricing Landscape, Expert Guides 
30/09/2015 https://www.expertguides.com/articles/france-and-beps-a-changing-transfer-pricing-
landscape/arvkwkwv or Allen&Overy,"Multinational tax practices face growing scrutiny" 
http://www.allenovery.com/SiteCollectionDocuments/Multinational-tax-practices-face-growing-
scrutiny.pdf  

94 

 
 
 
 
                                                 
  A longer duration for solving cases 

2. Estimation of cases addressed in the MAP under DTC (i.e. cases not falling under 
the AC) and total number of disputes 

As the statistics available for the double taxation disputes ('cases') ending under the AC 
only include cases of double taxation in the context of transfer pricing/profit attribution 
to permanent establishments, an additional calculation is needed for the double taxation 
disputes  to  which  the  MAP  under  applicable  DTCs  applies.  For  this  calculation  a  full 
coverage with DTC in the intra EU bilateral relations is assumed154.   

The 2016 targeted consultation showed a 75% share of transfer pricing cases for the EU 
(a substantial increase from the 34% reported in the 2010 open public consultation)155 in 
all pending cases. At the same time, also the statistics from other major countries, notably 
the US (70  %)156 and the focus on transfer  pricing observed in audit  trends157, seem to 

154   The number of bilateral relationships where there is currently no DTC is very limited (8 of 378). 
155   See section of public consultation 2010 "Some highlights from the public consultation",  
156   Litsky, Kumar and Lesprit, "Strategic considerations for tax controversy, risk management and double 

taxation avoidance, International Tax Review March 2016  
http://www.internationaltaxreview.com/Article/3539707/Strategic-considerations-for-tax-controversy-
risk-management-and-double-taxation-avoidance.html 

95 

 
 
 
 
 
                                                 
confirm  the  breakdown  of  the  scope  of  double  taxation  disputes.  On  the  basis  of  these 
estimations  it  is  assumed  that  the  transfer  pricing  cases  constitute  around  70%  of  all 
(pending) cases 

Starting  from  the  640  pending  transfer  pricing  cases  at  the  end  of  2014  the  number  of 
non- transfer pricing cases is estimated with around 270 cases (640 x 30/70) resulting in a 
total case load of around 910 cases at the end of 2014. For 2020 the number is estimated 
with  1200  transfer  pricing  cases158  and  515  non-transfer  pricing  cases  (MAP  cases), 
resulting in a total case load of around 1715 cases. 

The OECD statistics on the double taxation disputes159, a worldwide total of 1821 MAP 
cases were reported by the EU Member States. Putting the total number of 910 estimated 
case  in  relation  to  the  total  number  of  1821  MAP),  we  conclude  that  around  50  %  of 
cases where the EU Member States are involved are intra EU cases.  

3. Cases where no remedies are sought 

There may be various reasons why taxpayers do not seek remedies, reaching from non-
awareness of applicable DTDRM, to deprival by a tax administration ('implicit denial of 
access')  or  cases  where  an  applicable  DTDRM  is  considered  as  too  lengthy,  costly  or 
non-conclusive160.  

In the 2010 consultation, the percentage of cases where no remedies were sought was 15 
% of total cases. The percentage for the cases in the 2016 data collection is around 30% 
of  total  cases.  The  discussion  at  the  level  of  the  EU  JTPF  indicates  that  the  occasions 
where finally no remedies are taken did increase. As a conservative working assumption 
we assume that in 25% of cases per year no remedies are sought. Calculated on the basis 
of 250 cases initiated under the AC in 2014 (transfer pricing only)161 and extrapolated to 
a total number of all double taxation disputes of 360 cases (250x100/70) the number of 
double  taxation  disputes  where  taxpayers  did  not  seek  remedies  for  various  reasons  is 
therefore estimated with around 120 cases p.a. 

157   See e.g. E&Y 2014 global transfer pricing tax authority survey 

http://www.ey.com/Publication/vwLUAssets/EY-global-transfer-pricing-tax-authority-
survey/$FILE/ey-2014-global-transfer-pricing-tax-authority-survey.pdf  

158   See Number 1 above 
159   For an overview of OECD MAP statistics see: http://www.oecd.org/ctp/dispute/map-statistics-

2014.htm  

160   For details on the problems encountered for the Arbitration Convention see section 2.3 
161   See statistics on pending cases under the AC 2014: 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/foru
m/jtpf0082015acstatistics2014.pdf  

96 

 
 
 
 
                                                                                                                                                 
ANNEX E - ESTIMATION OF AMOUNTS OF TAX INVOLVED IN DTDRM 

1. Responses received from MS on amounts of tax involved in cases pending under 
the AC 31.12.2014: 

On  2  May  MS  were  asked  for  an  estimate  of  the  taxes  involved  in  the  cases  pending 
under the AC at the end of 2014. For the purpose of the estimate the tax was calculated as 
the adjustment disputed as requested by the taxpayer multiplied with the tax rate of that 
MS and not considering loss carry forwards or other items with implications on the actual 
tax.  

Given  the  complexity  of  calculating  exact  amounts  MS  were  invited  to  allocate  the 
number of cases into rather broad categories.  

The following numbers were received from 8 MS.  

MS 1  MS 2  MS 3  MS 4  MS 5  MS 6  MS 7  MS 8  Total 

 up to 10,000 €  4 
10 - 100 000 € 

100 000 - 1 
million € 
1-10 million € 
10-100 million 
€ 
> 100 million 
€ 

9 

7 

1 

2 
8 

13 

1 
3 

15 

11 
9 

2 

1 
3 

11 

14 
5 

1 

8 

8 

19 
14 

1 

1 

2 

1 

3 

1 

8 
22 

60 

56 
28 

4 

178 

One of these MS provided the actual amount of tax within the respective category. 

MS 1 

 up to 10,000 

10,000 - 100 000€ 

Number 
of cases 
4 

amount 
involved 

9 916  

average 

2 479  

100 000 - 1 
million€ 
1-10 million€ 

10-100 million€ 
> 100 million€ 

9 

7 

1 

4 197 299  

23 041 581  

308 777 052  

466 367  

3 291 654  

308 777 052  

The actual number provided by this MS indicates that the average amounts per category 
are around 30% of the maximum amount in the respective categories.   

97 

 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
                          
  
  
  
                  
               
  
  
  
             
 
The following overview of cases under the AC and amounts involved in 2014/at the end 
of  2014  are  calculated  based  on  the  distribution  of  cases  under  the  AC  in  the  various 
categories,  extrapolated  to  the  total  number  of  cases.  The  amounts  involved  are 
calculated based on the conservative assumption that the tax involved per case is around 
30% of the upper number of the respective category.  

Cases 
repor-
ted by 
MS 

8 

22 

60 

56 

28 

4 

% 

4.5 

Extrap
olated 
to all 
AC 
cases 
29 

12.4  79 

33.7  216 

31.5  201 

15.7  101 

2.2 

14 

amount (30% 
of highest per 
category) 

total amount in 
Euros 

3 000  

87 000  

30 000  

2 370 000  

300 000  

64 800 000  

3 000 000  

603 000 000  

30 000 000  

3 030 000 000  

Amounts cases 
pending 2 years 
plus 
in Euros 

15 000  

420 000  

11 700 000  

108 000 000  

540 000 000  

Cases 
pen-
ding 2 
years 
plus 
5 

14 

39 

36 

18 

3 

178 

640 

115 

300 000 000  

4 200 000 000  

900 000 000  

7 900 257 000  

1 560 135 000  

 up to 
10,000 
10,000 -  
100 000€ 
100 000 -  
1 million€ 
1-10 
million€ 
10-100 
million€ 
> 100 
million€ 
Total 

Applying this model to the number of cases initiated under the AC in 2014 (253) results 
in the following estimation: 

Cases 
reported by 
MS 

 up to 10 000 

8 

10 000 - 100 000€  22 

100 000 - 1 
million€ 
1-10 million€ 

10-100 million€ 

> 100 million€ 

60 

56 

28 

4 

% 

4 

12 

34 

31 

16 

2 

Extrapol. 
cases 
initiated 
2014 
11 

31 

85 

80 

40 

6 

Total 

178 

253 

amount (30% 
of highest per 
category) 

total amount  

3 000  

33 000  

30 000  

930 000  

300 000  

25 500 000  

3 000 000  

240 000 000  

30 000 000  

1 200 000 000  

300 000 000  

1 800 000 000  

3 266 463 000  

2. Estimation of amounts involved in cases pending under DTC  

There is no statistical information available on the amounts involved in disputes pending 
under  DTCs.  An  indication  of  the  amounts  of  tax  at  stake  can  only  be  taken  from  the 
2010 consultation as in the 2016 data collection did not provide meaningful information. 

98 

 
 
  
                     
                           
                   
                  
                     
                 
                
                   
           
            
                
         
          
             
         
        
             
         
 
 
            
     
  
                     
                           
                  
                         
                
                   
            
                
          
             
        
             
 
 
           
 
45 cases were reported in 2010 and the amounts of tax reported were converted into the 
categories  used  under  this  impact  assessment.  The  respective  percentages  were  then 
applied to the estimated number of 270 disputes pending under DTC.   

Under a conservative working assumption i.e. not calculating an increase of the amounts 
involved  it  is  assumed  that  the  amounts  of  tax  involved  in  these  cases  pending  under 
DTC at the end of 2014 is around EUR 2.500.000.000. 

In summary amount of tax involved in the cases pending at the end of 2014 is EUR 10.5 
billion. 

If no action is taken this amount will increase by the end of 2020 as follows: 

Cases 
reported 
by MS 

% 

Extrapolated to 
1200 AC cases 
estimated in 
2020 

amount (30% of 
highest per 
category) 

total amount 

 up to 10 000 

8 

4.5  54 

                3 000                       162 000  

10 000 - 100 000€  22 

12.4  148 

              30 000                    4 440 000  

100 000 - 1 million€ 60 

33.7  404 

            300 000               121 200 000  

1-10 million€ 

10-100 million€ 

> 100 million€ 

56 

28 

4 

31.5  378 

3 000 000  

         1 134 000 000  

15.7  189 

30 000 000  

         5 670 000 000  

2.2  27 

300 000 000  

         8 100 000 000  

       15 029 802 000  

Distribution 
of DTC 
disputes in 
2010 public 
consultation 

% of 
total 

extrapolated to 515 
cases estimated to be 
pending under DTC 

tax involved 
30% of 
maximum 
value 

amount of tax 
involved 

maximum in € 

99 

minimum in €maximum in €total number of DTC disputes reported  2010 public cons. % of totalextrapola-ted to cases estimated under DTCtax involved 30% of maximum valueamount of tax involved1,00010,0001227723,000216,00010,000100,0008184830,0001,440,000100,0001,000,000132978300,00023,400,0001,000,00010,000,000818483,000,000144,000,00010,000,000100,000,000371830,000,000540,000,000100,000,0001,000,000,000126300,000,0001,800,000,000452702,509,056,000 
 
 
 
 
 
 
 
 
 
 
 up to 10 000 

12 

27 

137 

3 000 

411 000 

10 000 - 100 
000€ 

100 000 - 1 
million€ 

8 

13 

1-10 million€  8 

10-100 
million€ 

3 

> 100 million€  1 

18 

92 

30 000 

2 760 000 

29 

18 

7 

2 

149 

92 

34 

11 

300 000 

44 700 000 

3 000 000 

276 000 000 

30 000 000  1 020 000 000 

300 000 000  3 300 000 000 

4 643 871 000 

In summary the amount of tax disputed in the cases pending by the end of 2020 is 
therefore estimated at around EUR 20 billion.  

In addition the amount of tax involved in the 120 cases where no remedies are sought has 
to be taken into account. However, given that in many of these instances a lower tax re-
assessment is agreed in exchange for not taking legal remedies and that no data on these 
kinds of agreements is available it is not possible to reliably estimate the amount of tax 
involved in these cases.   

100 

 
 
 
 
 
 
 
 
 
ANNEX F: SHORTCOMINGS IDENTIFIED IN DETAIL AND FOR THE DTDRM IN THE EU 

A. Shortcomings identified for DTDRM in the EU in detail 

1. Lack of enforceability 

1.1 Deprival from accessing DTDRM ('implicit denial of Access') 

Taxpayers  stress  that  the  number  of  cases  in  which  they  are  factually  deprived  from 
initiating an applicable procedure is substantially higher162. They assume factual deprival 
of access e.g. in cases where a taxpayer considers that accepting double taxation is less 
costly/burdensome  than  engaging  into  a  DTDRM  where  there  is  a  fear  for  further 
investigations  or  where  a  reduced  amount  of  double  taxation  was  made  conditional  to 
withdrawal of remedies ('implicit denial of access'). The number of such instances is for 
example estimated with 120 cases in 2014. 

1.2. Explicit denial of access to available DTDRM 

Taxpayers  report  that  in  a  substantial  number  of  cases  access  to  a  dispute  resolution 
procedure is denied by tax administrations i.e. a request for initiating a mutual agreement 
procedure is refused ('explicit denial of access'). E.g. in 2014 MS reported that access to 
the  EU  Arbitration  Convention  was  explicitly  denied  in  14  cases163.  Roughly 
extrapolated to the total number of double taxation disputes for corporations there would 
for 2014 be 25 instances with an explicit denial of access. The number may increase to 
until  2020  as  well.  It  should  be  stressed  however  that  this  impact  assessment  does  not 
address  whether  such  a  denial  of  access  is  justified  under  provisions  in  the  respective 
DTDRM or not. 

1.3. Blocked/Delayed Procedure 

In situations where there is mandatory resolution of double taxation disputes within fixed 
timelines the question whether a case is considered as initiated is of great importance as 
the date of the initiation marks the starting point for the time period for solving the case. 
A tax administration may therefore be particularly keen to have all the information at its 
disposal which it considers necessary for justifying its position as all requests made after 
initiation of the case will go to the expense of the time for reaching an agreement with 
the other State.  

Instances were reported where a long time passed between the first request for initiating 
the  DTDRM  and  the  actual  initiation/acceptance  of  the  case.  While  for  taxpayers  the 
tax 
delay  was  caused  by  ongoing  and  overly  comprehensive  requests  from 
administrations  tax  administrations  justified  a  deferral  with  unsufficient  information 
provided by taxpayers when making the request164. The statistics 2012 – 2014 on pending 

162   See e.g. comments from non governmental Members of the EU Joint Transfer Pricing Forum 

JTPF/020/2012/EN repeated in subsequent discussion. and outcome 

163   See EU Joint Transfer Pricing Forum, Statistics on Pending MAPs under the EU Arbitration 

Convention at the end of 2014 
http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/foru
m/jtpf0082015acstatistics2014.pdf  

164   refer to discussion at EU JTPF 

101 

 
 
                                                 
MAPs  under  the  AC  as  the  most  relevant  DTDRM  within  the  EUreveal  that  there  are 
indeed cases where there is a (sometimes significant) delay between making the request 
and initiation of the case. However in 87 % of the cases reported165 the initiation takes 
place  within  0-6  months  after  receipt  of  the  request  a  delay  of  6-12  months  is 
encountered in 10% of the case and a delay beyond 12 months in 3%. 

As  regards  the  cases  not  covered  by  the  AC  but  by  a  DTC  with  mandatory  resolution 
within a fixed timeline one may expect a similar situation. If the DTC only provides for 
endeavouring  to  reach  a  solution  there  may  be  less  pressure  for  tax  administrations  to 
make  sure that  all information  is  received  before initiation  the procedure as  there is no 
obligation to come to a conclusion within a certain timeframe. The problem is therefore 
mainly relevant for DTDRM with mandatory settlement.   

An important shortcoming encountered by stakeholders is the duration of the DTDRM166 
in the EU up to situations where no agreement is reached. 

Even in cases where a DTDRM applies which provides for mandatory resolution within 
certain timelines, significant delays are  encountered.  Within the EU, the procedure laid 
down in the EU Arbitration Convention is the most important DTDRM. In addition there 
are  bilateral  DTC  which  contain  a  dispute  resolution  mechanism  with  mandatory 
settlement.  The  number  of  treaties  containing  such  a  mechanism  is  however  rather 
limited  (14  DTC  of  370  DTC)  within  the  EU  and  statistical  data  not  available.  The 
estimation of the size of the problem based on the statistics on the functioning of the EU 
Arbitration Convention covering all MS and the most frequent issue of double taxation 
(70%)  is  regarded  as  providing  a  suitable  basis  for  estimating  the  size  of  the  problem. 
Furthermore  the  timelines  laid  down  in  the  DTC  with  arbitration  is  mostly  similar  to 
those set out in the EU Arbitration Convention. 

Although the Arbitration Convention and most of the few DTC with an arbitration clause 
foresee a resolution of the dispute within 3 years from the initiation of the procedure a 
substantial number of cases take longer. From the 640 bilateral cases pending within the 
EU at the end of 2014 260 (42 %) cases are pending longer than 2 years. Within these 
260  cases  the  procedure  is  delayed  with  the  agreement  of  the  taxpayer  in  62  cases 
(corresponding to 9.5% of total cases) in 83 cases (corresponding to 13 % of total cases) 
the  delay  is  justified  under  the  provisions  of  the  Arbitration  Convention  but  in  115 
(corresponding to 18 % of total cases) the delay is not justified.   

An important shortcoming encountered by stakeholders is the duration of the DTDRM167 
in the EU up to situations where no agreement is reached. 

Even  in  cases  where  a  DTDRM  applies  which  foresees  a  mandatory  resolution  within 
certain  timelines  significant  delays  are  encountered.  Within  the  EU  the  procedure  laid 
down in the EU Arbitration Convention is the most important DTDRM. In addition there 
are  bilateral  DTC  which  contain  a  dispute  resolution  mechanism  with  mandatory 
settlement.  The  number  of  treaties  containing  such  a  mechanism  is  however  rather 

165   Average 2012 – 2014 
166   See recommendation C9 of the Dodds Niedermayer report 
167   See recommendation C9 of the Dodds Niedermayer report 

102 

 
 
                                                 
limited  (14  DTC  of  370  DTC)  within  the  EU  and  statistical  data  not  available.  The 
estimation of the size of the problem based on the statistics on the functioning of the EU 
Arbitration Convention covering all MS and the most frequent issue of double taxation 
(70%)  is  regarded  as  providing  a  suitable  basis  for  estimating  the  size  of  the  problem. 
Furthermore  the  timelines  in  the  DTC  with  arbitration  is  mostly  similar  to  those  of  the 
EU Arbitration Convention. 

Although the Arbitration Convention and most of the few DTC with an arbitration clause 
foresee a resolution of the dispute within 3 years from the initiation of the procedure a 
substantial number of cases take longer. From the 640 bilateral cases pending within the 
EU at the end of 2014 260 (42 %) cases are pending longer than 2 years. Within these 
260  cases  the  procedure  is  delayed  with  the  agreement  of  the  taxpayer  in  62  cases 
(corresponding to 9.5% of total cases) in 83 cases (corresponding to 13 % of total cases) 
the  delay  is  justified  under  the  provisions  of  the  Arbitration  Convention  but  in  115 
(corresponding to 18 % of total cases) the delay is not justified.   

The number of cases taking longer did increase in the past  

The timeline until these cases are solved varies. While the majority of these cases seem 
to  be  solved  within  3-4  years  there  are  some  cases  however  are  taking  considerably 
longer.  

103 

 
 
 
 
2. Inefficient and costly procedures 

2.1 Costs of DTDRM  

The  costs  associated  with  solving  a  double  taxation  dispute  were  reported  as  being  an 
important  shortcoming  of  the  current  DTDRM.168  However  there  were  only  a  limited 
number of exploitable answers to the question in the 2016 data collection169: 

In Euro 

between  100 
001  and  1 
million € 

between 
million 
10 million € 

1 
and 

between 
million 
100 million € 

10 
and 

Interest 
costs 

Penalties 

Other 
costs 

Legal 
advisory 
and 
procedur
e costs 

in-house 
costs  (e.g. 
salary  of 
dedicated 
resources
) 

Other 
external 
administr
ative costs 

min   15 000 

23 500 

max  30 000 

23 500 

min   40 000 

10 000 

100 000 

max  750 000 

400 000 

32 5000 

min   35 000 

10 000 

8 000 000 

max  200 000 

100 000 

30 800 000 

23 000000 

above 

100  min   100 000 

10 000 

168   See section 2.5 of the 2016 data collection 
169   See section 2.6 of the 2016 data collection 

104 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
million € 

max  1 000 000 

100 000 000  18 000 

Given  the  broad  variety  of  reasons  of  double  taxation  underlying  the  disputes  the 
background underlying the reassessment the duration of the procedure etc. it would not 
be  sound  to  try  to  determine/estimate  a  kind  of  range  of  costs  per  case.  Therefore  the 
conclusion as regards the costs involved for taxpayer may be summarized in accordance 
with  the  predominant  view  expressed  by  most  stakeholders  indicating  that  the  costs 
associated are regarded as being significant/excessive170  

2.2 Non-homogenous uptake of DTDRM in the EU  

The statistics available for the EU AC also show differences in the application of the AC. 
While some Member States manage to keep their inventory (i.e. number of active cases) 
over  the  years  for  other  Member  States  a  continuous  mismatch  between  cases  initiated 
and cases solved is encountered.171     

As it was explained in section 1.2 the taxpayer has several possibilities to seek solution. 
Since 2008 the OECD MTC foresees extending the MAP with an arbitration procedure 
for cases where competent authorities cannot reach an agreement on one or more issues 
so that the resolution of the case is prevented.172 The arbitration procedure provided for 
in the OECD MTC is not fundamentally different to the arbitration procedure set out in 
the  EU  AC.  However  the  uptake  of  arbitration  procedures  in  DTCs  within  the  EU  is 
rather limited; as of today an arbitration clause was agreed only in 14 out of 370 bilateral 
DTC within the EU.173 On the other hand there are very few situations where there is no 
dispute  resolution  mechanism  at  all.  In  the  EU  only  8  out  of  378  bilateral  relations 
between MS are not covered by a DTC.174  

3. Non conclusive DTDRM 

The DTDRM traditionally set out in DTC require the States involved in the dispute only 
to endeavour reaching an agreement on how to eliminate double taxation. Consequently 
there is  a  risk  that  double  taxation is  finally  not  resolved.  Since  2008  the  OECD  MTC 
foresees extending the mutual agreement procedure with an arbitration procedure where 
the competent authorities cannot reach an agreement on one or more issues that prevent 
the resolution of the case175. The arbitration procedure suggested by the OECD is broadly 
similar  to  the  arbitration  procedure  of  the  EU  Arbitration  Convention.  However  the 
uptake of arbitration procedures within the EU is rather limited. Up to date an arbitration 
clause  was  agreed  only  in  14  DTC  of  378  bilateral  relationships  within  the  EU  which, 
however, vary as regards the procedure176.  

170   See section 2.6 in data collection 2016 and section  
171   See Annex G for an overview of AC cases initiated vs. cases completed per MS 
172   See paragraphs 63 ff. of the Commentary on Article 25 OECD MTC 
173   See bilateral DTC involving the following Member States: AT/DE, BE/UK, EE/NL, FI/NL, FR/DE, 

FR/UK, DE/LU, DE/SE, DE/UK, IT/SI, NL/PT, NL/SI, NL/UK, ES/UK 

174   See bilateral DTC involving the following Member States: CY/LV, CY/LU, CY/NL, CY/FI, CY/HR, 

DK/ES, DK/FR, HR/LU 

175   See paragraphs 63 ff. of the Commentary on Article 25 OECD MTC 
176   AT/DE, BE/UK, EE/NL, FI/NL, FR/DE, FR/UK, DE/LU, DE/SE, DE/UK, IT/SI, NL/PT, NL/SI, 

NL/UK, ES/UK 

105 

 
 
 
 
 
 
                                                 
In addition there are situations with no dispute resolution mechanism at all. In the EU 8 
of 378 bilateral relationships between MS are not covered by a DTC177.  

B. Shortcomings identified for DTDRM in the EU overview 

The  Table  bellows  presents  an  overview  of  the  shortcomings  identified  per  double 
taxation resolution mechanism.  For all DTDRM problems as regards enforceability and 
efficiency have been encountered. As regards the scope of mandatory resolution the EU 
Arbitration  Convention  is  limited  to  issues  of  transfer  pricing/profit  attribution  to 
permanent establishments and DTC which contain an arbitration clause are only available 
in a very limited number of bilateral relations between MS:  

DTDRM 

Enforceability 
Implicit 
denial 

Explicit 
deni-al 

Efficiency 

Block  Admin.  
burden 
and 
costs 

  Non 

homog. 
uptake 
the EU 

in 

Scope of mandatory resolution 
Not 
mandatory 

Limited 
to 
certain 
issues 

Limited 
to 
certain 
MS 

EU 
Arbitration 
Convention 
DTC  with 
arbitration  
DTC 
without 
arbitration 
No DTC 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

  X 

  X 

  X 

  X 

X 

X 

X 

X 

177   CY/LV, CY/LU, CY/NL, CY/FI, CY/HR, DK/ES, DK/FR, HR/LU 

106 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
ANNEX  G:  VERVIEW  OF  CASES  INITIATED  UNDER  THE  AC  VS.  CASES  COMPLETED  PER 

MEMBER STATE 

2012 

2013 

2014 

107 

 
 
 
 
 
 
 
ANNEX H:  ASSESSMENT  OF  DATA  COLLECTION  ON  IMPROVING  DOUBLE  TAXATION 

DISPUTE RESOLUTION MECHANISMS 

A. Information About You 

We  received  27  responses.  25  responses  where  from  an  organization  or  company   2  answers 
were received from a consultancy firm summarizing the responses received from its network. 

In 15 cases it was the ultimate parent company responding to the questionnaire  in 4 cases an 
intermediate parent and in 3 cases a subsidiary. 

Qualification of the respondents 

 5 respondents did not give an answer to the questions to assess the size of the respondents. 3 
respondents fall under the EU definition of Small and Medium Sized Enterprises ('SME').178 The 
others are big Multinational enterprise Groups 

The respondents were resident in the following States:  

In 15 cases it was the ultimate parent company responding to the questionnaire  in 4 cases an 
intermediate parent and in 3 cases a subsidiary. 

Qualification of the respondents 

 5 respondents did not give an answer to the questions to assess the size of the respondents. 3 
respondents fall under the EU definition of Small and Medium Sized Enterprises ('SME').179 The 
others are big Multinational enterprise Groups 

Qualification of the respondents 

 5 respondents did not give an answer to the questions to assess the size of the respondents. 3 
respondents fall under the EU definition of Small and Medium Sized Enterprises ('SME').180 The 
others are big Multinational enterprise Groups 

The respondents were resident in the following States:  

22 of them are doing business at international level including the EU  5 only in their State of 

178   EU recommendation 2003/361 
179   EU recommendation 2003/361 
180   EU recommendation 2003/361 

108 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
residence 

The respondents are active in the following business sectors:  

B. Your Opinion 

1. Double Taxation within the EU 

1.1 Did you encounter any case of double taxation in a cross-border situation within the 
EU? 

21 respondents did encounter double taxation within the EU  5 did not and 1 respondent did not 
provide an answer.  

1.2  If  yes please  indicate  the  cases  of  double  taxation  in  a  cross  border  situation  you 
experienced between 2010 and 2015 within the EU (the term 'case' refers to an instance of 
double  taxation  resulting  e.g.  from  a  reassessment  and  is  not  restricted  to  a  single  tax 
year). 

Of  21  respondents  who  did  encounter  double  taxation  within  the  EU   cases  were  reported  as 
follows:  

Year 

Exploitable 
responses 

Number 
of cases 
reported 

Relating to tax years 

2010 

9 

2011 

7 

24 

16 

2012 

7 

19 

2013 

4 

18 

2002 (2)  2003 (2)  2004 
(2)  2005 (4)  2006 
(5)  2007 (5)  2008 
(3)  2010 (1) 
2002 (1)  2003 (2)  2004 
(3)  
2005 (3)  2006   
(4)  2007(4)  2008 
(2)  2010 (1)  2011 (1) 
2002 (1)  2003 (1)  2004 
(1)  
2005 (1)  2006 (2)  2007 
(2)  2008 (3)  2009 
(3)  2010 (3)  2011 
(1)  2012 (1) 
2002 (1)  2003 (2)  2004 
(2)  

Procedure to 
eliminate 
double 
taxation 
initiated 
Yes 
6 

No 
3 

4 

3 

5 

2 

Amount 
provisioned 
for the cases 

No 

2 

Yes  
70.5 M 
EUR 
(10 
cases) 
45.6 M 
EUR 
(4 
cases) 

210 M 
EUR 
(3 
cases) 

5 

0 

2 

2 

109 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014 

6 

26 

2015 

6 

9 

2005 (2)  2006 (2)  2007 
(2)  
2008 (3)  2009 (4)  2010 
(2) 
2002 (1)  2003 (2)  2004 
(2)  2005 (2)  2006 
(2)  2007 (2)   
2008 (3)  2009 (5)  2010 
(4)  2011 (2)  2012 (1) 
2008 (1)  2009 (1)  2010 
(5)  2011 (4)  2012 
(3)  2013 (2)  
2014 (1) 

6 

2 

1 

5 

1 

1 

38.5 M 
EUR (7 
cases) 

65.3 M 
EUR (7 
cases) 

1.3 In the following table please provide us with your best estimate of the relative impact 
of  the double taxation cases as listed above based on consolidated account information 
(or  if  not  available  on  other  accounting  information).  The  information  below  should 
provide  information  about  the  impact  of  the  disputed  tax  at  the  level  of  the  whole  MNE 
Group 

There were only a limited number of exploitable answers allowing only a min/max overview 

Yea
r  

Exploita
ble 
answers 

Amount 
of DT 

Mi
n  

Ma
x 

4 

4 

5 

3 

3 

5 

201
0 
201
1 
201
2 
201
3 
201
4 
201
5 

% of total 
income tax 

% of tax 
re 
assesse
d 
Min   Max  Mi
n 
2 

Ma
x 
15 

10 

0.00
2 
0.00
5 
0.00
3 
0.00
5 
0.00
6 
0.00
8 

20.3
7 
40 

14.3
6 
11.6
6 
10 

2 

2 

2 

0 

2 

35 

2 

10
0 

% of tax 
liabilities 

% of 
turnover 

% of net 
pre-tax 
profit 

Min  Max  Min 

Max  Min  Ma

0.00
2 
0.00
5 
0.00
3 
0.00
5 
0.00
6 
0.00
8 

20 

177.6
6 
30 

0.001
5 
0.001
9 
0.001
4 

1 

0.00
4 

0.14  0.00

8 

5 
0.00
3 

11.91  0.002  0.09  0.00

10.77  0.002

40 

5 
0.003
3 

10.7
7 
45 

5 
0.00
5 
0.00
7 

x 
5 

14.
8 
20 

20 

2. Your cases of double taxation within the EU 

2.1 What was the main reason for the double taxation? (only one choice possible) 

Within the 21 responses the major reason for the double taxation was transfer pricing 

110 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.2 Which Member State(s) was (were) involved? (multiple choices possible) 

111 

 
 
 
 
 
 
 
 
 
2.3 What was the amount of income tax/corporate tax disputed in your case of double 
taxation within the EU? 

Information was received from 20 respondents 

2.4 a) In which year was the double taxation established? 

Information was received from 13 respondents 

Year in which DT was 
established 

3,5

3

2,5

2

1,5

1

0,5

0

2003200420052006200720082009201020112012201320142015

2.4 b) To how many tax years did this amount relate? 

Information was received from 16 respondents 

112 

 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of double taxation 
realting to how many tax years 

8

6

4

2

0

1
years

2
years

3
years

4
years

5
years

6
years

7
years

8
years

9
years

10
years

2.5 What have been/will be the approximate costs of the case of double taxation you are 

reporting? (in Euros) 

There were only a limited number of exploitable answers allowing only a min/max overview 

In Euro 

Legal   ad

visory 

and 

procedur

e costs 

in-house 
costs (e.g. 
salary of 
dedicated 
resources) 

Other 
external 
administrat
ive costs 

between  100  001 

min   15.000 

23.500 

and 1 million € 

max  30.000 

23.500 

Interest 
costs 

Penalties 

Other 
costs 

between 

1 

min   40.000 

10.000 

100.000 

million  and  10 

million € 

max  750.000 

400.000 

32.5000 

between 

10 

min   35.000 

10.000 

8.000.000 

million  and  100 

million € 

max  200.000 

100.000 

30.800.000 

23.000000 

above 

100 

min   100.000 

million € 

max  1.000.000 

10.000 

100.000.000  18.000 

Other costs were specified as costs arising for translation 

2.6 If you cannot estimate the costs  how do you perceive these costs within  the total 

costs  arising  for  fulfilling  your  tax  obligations  of  the  company  during  the  period  in 

which the double taxation did remain? 

In 18 responses received on this question and costs were estimated as 

113 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
114 

 
 
 
 
 
 
2.7  a)  In  the  following  tables  please  provide  us  with  your  best  estimate  of  the  relative 
impact  of  the  disputed  double  taxation  case  based  on  consolidated  account  information 
(or  if  not  available  on  other  accounting  information).  The  information  below  should 
therefore inform about the impact of the disputed tax at the level of the whole MNE 

9 responses were received on the question in the first column (amount of double taxation with a 
minimum  amount  of  double  taxation  3.400.000  Euro  and  a  maximum  of  260.000.000  Euro 
resulting in an average of around 45.000.000 per case. 
For the other columns very limited information was received.  

2.7  b)  Amount  provisioned  in  the  consolidated  accounts  of  the  MNE  Group  for  the  case 
described in 2.1 

6  responses  were  received  on  this  question.  2  respondents  provisioned  for  the  full  amount  of 
double taxation2 1 respondent provisioned 50% and 3 respondents did not provision for potential 
double taxation 

2.7  c)  The  allocation  and  relevance  of  the  mount  provisioned  for  the  case  of  double 
taxation described in 2.1 to the MS involved 

No information was received on this question/table 

3. Measures Taken to Resolve Your Case of Double Taxation 

3.1 Did you seek remedies to remove double taxation in the case reported? 

20 responses were received on this question. 14 (70%) respondents did take remedies  6 (30%) 
respondents did not.  

3.2  What  was/were  the  reason(s)  for  not  having  sought  remedies  to  remove  double 
taxation? (multiple choice possible) 

Those respondents who did not take remedies provided the following reasons:  

115 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.3 a) What remedies did you seek to resolve your double taxation case? (multiple choice 
possible) 

The 16 respondents who tool remedies responded as follows  which also shows that often more 
than one kind of remedy was taken:  

116 

 
 
 
 
 
 
 
 
 
3.4 How effective was the solution? 

13 responses were received on this question which resulted in the following   

Arbitration Convention 

The double taxation was entirely eliminated 
The double taxation was partially eliminated 
I withdrew my application during the 
procedure 
The procedure is ongoing 
My request was rejected by Member States 
Other 

MAP under Double taxation  
The procedure is ongoing 

Remedies under domestic law 
The procedure is ongoing 
I withdrew my application during the 
procedure 

2 
1 

5 

3 

1 

1 

117 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
3.5 a) In case the procedure is finished: How long did it take? 

Arbitration 
Convention 
Duration min 
Duratoin max 

DTC  
Duration  

months 

36 
60 

36 

3.5 b) In case the procedure is not yet finished: since how long has it been ongoing since 
you have requested to initiate the procedure? 

Arbitration 
Convention 
Duration min 
Duratoin max 

DTC  
Duration min 
Duration max 

Domestic 
duration min 
duration max 

months 

20 
56 

36 
63 

4 

3.6 According to your opinion  what are the biggest advantages of the procedure you have 
used? (multiple choice possible) 

Arbitration Convention 
The Member States are obliged to reach a solution 
The procedure can be solved in an appropriate timeframe 
There is a possibility to be involved in and contribute to the 
discussions during the procedure 

DTC  
The Member States are obliged to reach a solution 
The procedure can be solved in an appropriate timeframe 
There is a possibility to be involved in and contribute to the 
discussions during the procedure 

Domestic 
There is a possibility to be involved in and contribute to the 
discussions during the procedure 

 Number 
6 
1 

1 

1 
1 

1 

1 

118 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
3.7 According to your opinion  what are the biggest disadvantages/problems of the 
procedure you used? (multiple choice possible) 

Arbitration Convention (8 cases) 
It takes too long 
It is too costly 
It is not conclusive 
It is not transparent enough 
It is ineffective when more than two countries are involved 
There is only a limited possibility for the taxpayer to contribute to the discussions during 
the 

Double Taxation Convention (3 cases) 
It takes too long 
It is too costly 
It is not conclusive 
It is not transparent enough 
It is ineffective when more than two countries are involved 

Dom law (2 cases) 
It takes too long 
It is not conclusive 
It is ineffective when more than two countries are involved 

 Number 
8 
3 
4 
3 
3 

5 

3 

3 
3 

1 
1 
1 

4.  The  EU  Arbitration  Convention  as  a  specific  Double  Taxation  Dispute  Resolution 
Mechanisms available in the EU 

4.1  Did  you  ever  apply  for  the  double  taxation  dispute  resolution  mechanism  under 

the EU Arbitration Convention? 

21 responses were received on this question. 14 respondents did apply for a procedure under 
the AC  7 respondents did not.  

4.2  a) Was access to the Arbitration Convention accepted by a tax authority? 

In the 14 cases where a request was made under the EU Arbitration Convention  the request 
was accepted in 10 cases and denied for 4 cases. 

4.2 b) What was the reason for the denial of access? 

In 1 case access was denied because the case was regarded as not covered by the Arbitration 
Convention. In the other 3 cases access was denied for the following reasons:  

1  case:  We  obtained  acceptance  for  some  cases.  The  acceptance  has  been  granted  after 
many years. 
2  cases:  All  reasons  listed  are  used  to  deny  access  to  the  AC.  Other  reasons  may  include: 
non-recognition of the double taxation or divergence in interpretation of Article 4 of the AC 

119 

 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
4.3  The  EU  Arbitration  Convention  foresees  certain  deadlines  to  be  respected.  Were 
they followed? 

Within  the  14  cases  the  deadline  was  followed  in  1  case.  In  13  cases  the  deadline  was  not 
followed for the following reasons. 

Other reasons mentioned were:  

  either the arbitration phase is not started or the acceptance of the filing is not granted. 
  No news from tax authorities 
  The procedure is still ongoing 
  one competent authority involved denied communication with the other one involved 
  All  reasons  mentioned  above.  Useful  to  explore  reasons  why  implementation  took 

longer than expected. 

5. The Implications of Double Taxation within the EU 

5.1 In your view  what are the implications for your company/group from the current 
situation with double taxation disputes in the EU overall (multiple choices possible)? 

23 responses were received on this question:  

120 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.2 What does your company/group mainly do to mitigate these issues? (multiple choices 
possible) Mapping of tax risks? 

23 responses were received on this question 

5.3 In your opinion  how do you think the situation as regards double taxation within the 

EU will develop within the next 5 years? 

22 responses were received on this question estimating the future development of double 
taxation. 14 respondents (64%) expect a significant increase  6 (27%) expect an increase and 2 
(9 %) respondents think that the situation will not change. 

121 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
122 

 
 
 
 
 
 
 
 
 
5.4 How do you rate the implication of the aspects listed under 1-5 in the rows of the table 
on the number of cases of double taxation? 

It will result in 

It will result in 

It will result in 

the 

the 

It will result in 

the number of 

number of 

They will not 

number of 

the number of 

double taxation 

double 

change the 

double 

double taxation 

I have no 

disputes 

taxation 

current 

taxation 

disputes 

opinion 

increasing 

disputes 

situation 

disputes 

decreasing 

significantly 

increasing 

decreasing 

significantly 

somewhat 

somewhat 

1. EU 

proposals in the area 

of direct taxation 

2.Globalisation  

of  business 

3. The 

implementation of the 

conclusions of the 

OECD/020 BEPS 

project 

4. Frequent changes 

in business models 

5. Business focus on 

intangible assets 

9 

11 

15 

9 

10 

3 

7 

4 

11 

10 

6 

2 

1 

1 

1 

2 

0 

1 

0 

0 

0 

0 

1 

0 

0 

2 

2 

0 

1 

1 

123 

 
 
 
 
 
6. The Implications of Double Taxation Disputes on Your Worldwide Operations 

PLEASE NOTE: THE QUESTIONS IN THIS SECTION ARE NOT LIMITED TO INTRA 
EU SITUATIONS 

6.1 Did you face disadvantages caused by your cases of double taxation? If so  please specify 
the kind of damage? (multiple choices possible) 

Do you consider cross border tax disputes as one of the risks which would potentially lead you 
to book a reserve/provision in your accounts? 

24 of 26 respondents answered with Yes  i.e. for  the vast majority cross border tax disputes lead to 
book a reserve in the accounts  

If  yes   would  the  existence  of  a  Mutual  Agreement  Procedure  with  no  arbitration  mechanism 
lead you to not book fully or partly corresponding reserves/provisions? 

On  this  question  16  of  22  respondents  answered  with  No   i.e.  for  the  vast  majority  the  existence  of 
MAP without arbitration would not lead them to book corresponding reserves 

If yes  would the existence of an arbitration mechanism lead you to not fully or partially book 
corresponding reserves/provisions? 

On  this  question  10  of  18  respondents  answered  with  yes   i.e.  the  existence  of  an  arbitration 
mechanism would lead the majority of respondents to not book a corresponding reserve.  

Did you book a provision for taxes in your accounts in relation to cross border tax disputes? 
' 
18 of 23 respondents booked a provision for taxes in their account 

124 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If  you  answered  yes  to  one  of  the  questions  above  what  is  the  amount  in  your  consolidated 
accounts of the respective financial year? 

Only 4 respondents provided information on this question:  

Respondent 1  Respondent 2  Respondent 3  Respondent 4 

4 000 000 

2010 
2011 
2012 
2013 
2014 
2015 

2 000 000 
2 000 000 
3 000 000 
5 000 000 
7 000 000 
7 000 000 

17 000 000 

10 000 000 
19 000 000 

69 900 000 
83 200 000 

6.7  In  case  of  acquisition  of  a  business  or  a  company   do  you  regard  the  identification  of 
significant unresolved cross border tax disputes as a potential deal breaker  i.e. did you decide 
not to enter into a transaction envisaged? 

From  26  respondents  15  respondents  regard  such  a  cross  border  tax  disputes  as  potential 
dealbreakers 11 respondents don't do so. . 

6.8  In  case  of  acquisition  of  a  business  or  a  company   do  you  ask  for  warranty  or  price 
adjustment  clause  or  an  immediate  price  reduction  in  relation  to  a  pending  double  taxation 
dispute? 

Other actions mentioned are  
 
Indemnity from seller 
  Case-by-case decision 
  Various - usually a negotiation mix 

125 

 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
In case an arbitration clause is available for a pending double taxation dispute  do you ask for 
a  warranty  or  price  adjustment  clause  or  an  immediate  price  reduction  in  relation  with  the 
pending dispute resolution? 

When  you  set  up  a  business  in  another  State   which  of  the  following  mechanisms  do  you 
consider  as  the  most  positive  factor  for  investment  as  regards  double  taxation  dispute 
resolution? 

6.11 If you answered yes to one of the factors in 6.10  do you consider that they facilitate the 
incorporation  of  a  business  or  setting  up  a  branch  at  an  earlier  stage  (shortening  of  the 
preparatory investment period) 

this  question  12  of 

On 
6.12  In  the  following  table  please  provide  us  with  your  best  estimate  of  the 

respondents  answered  with  yes  and  11  with  no

the  23 

relative  impact  of  all  your  disputed  double  taxation  cases  based  on 

consolidated  account  information  (or  if  not  available  on  other  accounting 

information). The information below should therefore inform about the impact 

126 

 
 
 
 
 
 
 
 
 
 
 
of all disputed double taxation at the level of the whole MNE 

On this question no exploitable answers were received 

127 

 
 
 
 
 
ANNEX I: CONSULTATION STRATEGY 

A. Origin/Past Consultation 

1.  Origin:    A  consultation  was  launched  in  2010  and  resulting  the  following  main 
conclusions:  

  Most corporate taxpayers who responded encountered double taxation   
  All MS are involved 
  The problem is not limited to intra EU situations  
  Transfer Pricing is the most frequent reason 
  The scale of tax involved is significant 

2. Follow up: As a follow-up to the result of the 2010 public consultation  COM examined 
the scope and magnitude of the problem by the following measures/consultations:   

  November  2011:  Communication  From  the  Commission  on  double  taxation  in  the 

Single Market (COM (2011) 712 final 

  March 2012: Change of statistics on functioning of the EU Arbitration Convention to 

better assess the problem as regards transfer pricing 

  December  2012:  Organisation  of  a  Fiscalis  seminar  on  double  taxation  issues  and 

insufficiency of international agreements 

  March 2013: Launch of Study to identify and describe most frequent double taxation 

cases in the internal market  (delivered by E&Y in June 2013) 

  April 2013: Discussion incl. questionnaires to MS and stakeholder meetings 
  October  2013  to  March  2015:  Consultation  of    EU  JTPF  and  comprehensive 
discussion in EU Joint Transfer Pricing Forum ('JTPF') on improving the functioning 
of the Arbitration Convention  

  June  2014:  Creation  of  an  expert  group  on  cross  border  tax  obstacles  for  individual 

and on inheritance tax within the EU  

  March  2015:  Report  of  the  JTPF    ('JTPF')  on  Improving  the  functioning  of  the 

Arbitration Convention  

B. Ongoing/Future Consultations 

1. Public Consultation (all stakeholders)  

  Objective: To allow interested parties to provide their views and opinions in order to 

inform the policy development process  

  Whom:  

o  An  open  consultation  which  is  designed  to  capture  general  views  and 
opinions 
economic 
operators   NGOs   academics   local   public  authorities   public  organisation  or 
authority  etc.) 

interested 

(citizens  

persons 

any 

of 

  How: Online questionnaires (Europa web-site  EU-survey). 
  When: launched on 16 February – close 10 May (cob) 
  Publicity: Action Plan + Press release + Europa web-site + targeted e-mailings + EU 

JTPF and Platform for Tax Good Governance as EU Expert Groups  

  Acknowledgement: as per public consultation procedures 
  Processing of comments: Stratification / statistics  attentive reading 

128 

 
 
 
  Feed-back:  Each  response  fed  into  Europa  web  site  +  summary  of  comments  in  ad 

hoc document to be posted on the web site + use in IA work. 

2.  Data  collection  via  a  questionnaire  to  Commission  Expert  Groups   namely   the  EU 
Joint Transfer Pricing Forum and the Platform on Tax Good Governance  

  Objective:  To  collect  meaningful  data  on  the  size  and  possible  impact  of  the 

problem  inter alia on:   

o 
o 
o 
o 
o 

the origin of the dispute 
the amount of taxes involved   
the measures taken   
the costs associated with the procedures taken 
the implications on investment decisions  M&A  creditworthiness     
  Whom: The parties that are member organisations represented in the Forum/Platform  
  How:  targeted  emails  to  Member  organisations  with  a  link  and  a  password  to  enter  the 

questionnaire in EU-survey 

  When:  

o  EU JTPF:  launched 4 March closing 31 March   
o  Platform : launched 9 March  closing 31 March 
  Publicity: in accordance with the rules of the JTPF/the Platform  
  Processing of comments: Evaluation of results via EU-survey  statistics extrapolation. 
  Feed-back:  Results  fed  into  the  IA  work  and  draft  proposal  –  minutes  fed  into  Europa 

web site 

129 

 
 
 
 
130 

 
 
 
 
ANNEX  J:  UNCITRAL  MODEL  LAW  ON  COMMERCIAL  ARBITRATION  (2006)  –  EU28  - 

OVERVIEW 

Adoption of the fast-track default mechanism for appointing arbitrators – Role of the National 
Court or Other Authority for certain function of arbitration assistance and supervision181 

Appointment by default within 30 days of the Arbitrator(s) by the 
competent judge or authority instead of the failing party or failing 
arbitrators (for cases related to the appointment of the third arbitrator) 

National Competent Court: 
BE  CZ  DE  EE  IE  EL  ES  FR  HR  DK  CY  HU  MT  AT  PT  RO  S
l  FI 
Other Authority: BG  SK 

LT/IT: shortened period of 20 days 
NL: period of 2 months 
PL/UK: shorter period depending on notice by one party 
LV: general principle according to which 'the parties can delegate the 
appointment of the arbitrators to any natural or legal person' 

Adoption 
and 
application 
of the 
UNCITRA
L Model 
articles 
6  11(3) 
and 11(4) 

Adoption of 
other 
alternative 
rules which 
are 
compatible 
with the 
UNCITRA
L Model 
Law on 
Commercia
l 
Arbitration 
(2006) 

181   See UNCITRAL Model Law on Commercial Arbitration 1985 – With amendments as adopted in 2006, 

Articles 6, 11(3) and 11(4) as well as the appended Explanatory Note by the UNCITRAL secretariat on the 
1985 Model Law on International Commercial Arbitration as amended in 2006 (Part Two), Section B.1.b 
'Salient features of the Model Law – Delimitation of court assistance and supervision': §15 "Recent 
amendments to arbitration laws reveal a trend in favour of limiting and clearly defining court involvement 
in international commercial arbitration. This is justified in view of the fact that the parties to an arbitration 
agreement make a conscious decision to exclude court jurisdiction and prefer the finality and expediency of 
the arbitral process." 

131 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
ANNEX K: IMPACT ON FUNDAMENTAL RIGHTS  

With  the  entry  into  force  of  the  Treaty  of  Lisbon  on  1  December  2009   the  Charter  of 
Fundamental Rights of the European Union ('the Charter')182
 has become legally binding. All 
legislative  proposals  of  the  Commission  are  subject  to  a  systematic  check  to  ensure  their 
compliance  with  the  Charter183.  This  annex  assesses  the  impact  on  the  following  relevant 
fundamental rights embodied in the Charter 

Right to property (Article 17) 
All policy options on effective DTDRM have a positive impact on the protection of right of 
property. Indeed  taxpayers or businesses being subject to unresolved situations of double and 
increasing  investigatory  powers  of  tax 
the 
even  multiple  taxations   considering  also 
administrations  and  the  high  amounts  at  stake184   could  conclude  that  their  right  to  property  is 
impacted.  This  is  reinforced  by  the  fact  that  there  is  no  certainty  in  terms  of  enforceability  and 
implementation  of  an  inter-State  decision  eliminating  double  taxation:  some  authors  argue  that 
ultimately governments are not constrained by such decisions  particularly arbitration decisions under 
DTCs  since no international mechanism exists for the enforcement of international obligations such as 
arbitration awards. According to the same authors domestic courts might not be able to enforce these 
awards   given  the  questionable  application  of  the  New  York  Convention  on  tax  arbitration  and  the 
doctrine of sovereign immunity and public policy185. The policy options on effective DTDRM respect 
the right of property by offering a recourse to taxpayers before National Courts in order to ensure that 
a final decision is ultimately taken to eliminate double taxation and also by ensuring the enforceability 
and implementation of this decision under the control of National Courts. 

Right to an effective remedy (Article 47 of the Charter) 
All policy options on effective DTDRM respect the right to an effective remedy. The policy 
options on do not affect the right of taxpayers or businesses to an effective remedy. None of 
the policy options deprives taxpayers or businesses of their right to go to court in case their 
rights and freedoms guaranteed by EU law are violated.  

The DTDRM mechanisms envisaged  particularly under option B  are not designed to replace 
court  procedures  but  to  offer  taxpayers  a  complementary  tool  to  solve  their  disputes  before 
going to court  if necessary. Recourse to DTDRM before going to court will not be made a 
mandatory first step.  

In addition  the initiative will set common standards for DTDRM mechanisms along the lines 
of  standards  under  the  right  to  a  fair  trial.  The  DTDRM  mechanisms  have  to  be 
impartial  disputes shall be dealt with in a short period of time  and the taxpayers will have a 
right  to  be  heard  and  represented  as  well  as  to  be  kept  informed  about  the  progress  of  the 
MAP. 

182   OJ 2010 C 83/02, 389 
183   Communication from the Commission Strategy on the effective implementation of the Charter, COM(2010) 

573 final, available at: 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0573:FIN:EN:PDF  

184   Debelva F. (2015) Excessive international taxation European Association of Tax Law Professors (EATLP) - 

Doctoral Poster Program, Milan, 28-30 May 2015 

185   See Altman, (2005) chap 6  

132 

 
 
 
  
 
 
 
 
                                                 
 
ANNEX L TEMPLATE FOR MONITORING 

133 

TABLE 1: STATISTICS ON THE FUNCTIONING OF DTDRM FOR REFERENCE YEAR Member State: Year MAP cases were initiatedOpening inventory on 01/01/xCases initiated in year xCases completed in year xEnding inventory on 31/12/xAverage cycle time for cases completed in x (in months)ABCDEF<2003200420052006200720082009201020112012201320142015TOTALColumnE/Endinginventoryon31/12/x:EnterinthiscolumnthenumberofpendingACMAPcasesason31/12/2015.ThetotalnumberofpendingMAPcasesshouldbebrokendownaccordingtotheyearinwhichthesependingcaseswereinitiatedandreportedintheappropriaterowofthetemplate.Thefigurespresentedherewillbereportedinthe"openinginventory"columnofthequestionnaireforthenextreferenceyear.Thefiguresin this column are obtained by adding the figures in columns B and C and by substracting the figures in column D.ColumnF/Averagecycletimeforcasescompletedduringthereferenceyear(inmonths):EnterinthiscolumntheaveragetimeforACMAPcasestobecompleted.ThisaverageiscomputedwithreferencetotheyearinwhichACMAPcaseswereinitiated(i.e.thecycletimeisforACMAPcases initiated in a particular year) and reported in the appropriate row of the template. The average is computed by aggregating the number of months ittooktocompleteeachACMAPcaseduringthereferenceyear.ThesecondstepistodividethisaggregatednumberofmonthsbythetotalnumberofsuchcompletedACMAPcases.TheresultistheaveragecycletimeofaMAPcaseinmonths–thatis,theaveragenumberofmonthstocomplete an AC MAP case. Explanatory notes:ColumnB/Openinginventoryon01/01/x:EnterinthiscolumnthenumberofpendingACMAPcasesasonthefirstdayofthereferenceyearforwhichdataisbeingprovided,i.e.01/01/x.(Thefiguresinthiscolumnwillduplicatethe"endinginventory"figuresincludedintherespectivecolumnforthepreviousreferenceyear.)ThetotalnumberofpendingACMAPcasesshouldbebrokendownaccordingtotheyearinwhichthesependingcaseswereinitiatedandreportedintheappropriaterowofthetemplate.(seeColumnA:YearMAPcaseswereinitiated).Thereferenceyearcellisblackedout,ascasescouldhaveonlybeeninitiatedduringtheactualreferenceyear,notbefore.ACompetentAuthority's(CA's)inventorywouldincludebothcasesarisingfromarequestsubmitteddirectlytothatCAandcasesarisingfromarequestsubmittedbythetaxpayertoanotherCAandsubsequentlypresentedbythelatterCAtotheformerCA.Asthiswouldotherwiseleadtodoublecountingofcasesintheoverallstatistics(e.g.totalnumber of cases) the actual number of cases for year x will be calculated by way of dividing the resulting total number of cases by 2.ColumnC/Casesinitiatedinx:EnterinthiscolumnthenumberofACMAPcasesinitiatedduringthereferenceyear.Notethatitisonlypossibletoenterdatainthiscolumnintherowforthereferenceyearforwhichstatisticsarebeingprovided(theotherrowsinthiscolumnareblackedout),giventhatpendingACMAPcasesinitiatedinearlierreferenceyearsshouldbereportedinColumnB.An“initiated”caseisonethathasbeenconsideredaswell-foundedbyacompetentauthorityonthebasisof6.3(g)oftheCoC.Bydefinitionthiscolumnwillincludeonlycasesinitiatedduringthecurrentreferenceyear.AcaseinitiatedbythereportingCAbutrejectedbytheotherCAhastobeincludedintable1.ThiscolumnwillincludebothcasesarisingfromarequestsubmitteddirectlytoyourCAandcasesarisingfromarequestsubmittedbythetaxpayertoanotherCAand subsequently presented by the latter CA to the former CA.                       ColumnD/Casescompletedinx:Enterinthiscolumnthenumberofcases:(1)thathavebeenresolvedbymutualagreement(includingarbitration)orbyunilateralactiononthepartofthecompetentauthority,wheretaxationnotinaccordancewithArticle4oftheAChasbeeneliminatedinlinewithArticle14oftheAC;(2)thathavebeenwithdrawnbythetaxpayer;(3)thathavebeenclosedotherwise(e.g.finalCourtdecision).AcaseshallbeconsideredcompletedonthedatetheclosinglettersrelatingtotheMAPhavebeenexchangedor,inabsenceofclosingletters,atthedatetheCAsclosedthecaseduringabilateralmeetingwheretherehasbeenanagreementthatthesignedminutesclosethecaseandnofurtherclosingletterswillbeexchanged.Atthispoint,theonlyremainingactionbythetaxadministrationshouldbetheprocessingoftheresult of the resolution, which should be accomplished fairly promptly (e.g. within 30 days).  
 
 
134 

TABLE 2: ANALYSIS OF PENDING CASES 2 YEARS AFTER THE DATE A CASE WAS INITIATED AS AT 31/12/xMember State: ABCDEFGHI20172018201920202021TotalExplanatory note:Column B / Number of cases: please note that years x and y are blacked out because the 2-year period cannot have expired on 31/12/x.Column E / Time limit waived with agreement of the taxpayer: see Article 7(4) of ACColumn G / In arbitration: to include cases referred to an advisory commission and awaiting its opinionColumn H / Settlement agreed in principle, awaiting exchange of closing letters for MAP (or, in absence of closing letters - signed minutes following a bilateral meeting between CAs where there has been an agreement that the signed minutes close the case and no further closing letters will be exchanged): to include cases (i) where CA have agreed MAP; (ii) where the advisory commission has delivered its opinion and the 6-month period where CA can deviate has not yet expiredColumn D / Cases pending before Court: this column covers cases where 2-year period has not yet expired because of Article 7(1) (2nd sentence) of AC and Article 7(3) of ACColumn F / To be sent to arbitration: to include cases for which the 2-year period has expired, but which have not been referred to an advisory commissionColumn C / Two year point not reached due to CoC 5(b)(i): the 2-year period starts on the latest of the following dates: (i) the date of the tax assesment notice, i.e. a final decision of the tax administration on the additional income or equivalent; (ii) the date on which the competent authority receives the request and the minimum information as stated under point 5(a). Thus, if the tax assessment notice (as defined in 5(b)(i)) was not yet issued when the case was initiated, the 2 year period starts some time after initiation, at the the day of the tax assessment noticeTABLE 3: REQUESTS REJECTED IN xMember State:Cases not presented within 3-year periodCases not within AC scope Cases with serious penaltyOther reasonsABCDECases accepted by the reporting CA which were rejected by other CAsExplanatory note:Reasons for rejectionTOTALRejected requests submitted to reporting CAThis table aims to collect information on the number of cases rejected and on the reasons for rejection. Cases to be reported are those rejected by the reporting CA (and therefore not initiated), as well as those accepted by the reporting CA but rejected by the other CA involved (thus initiated but not processed further). Cases initiated by another CA and rejected by the reporting CA are reported by the CA initiating the case.  
 
 
 
135 

TABLE 4: Time between submission of AC MAP request and initiation of the caseMember State: 0-6 months6-12 months>12 monthsABCDExExplanatory noteColumns C to E / Time from the date of AC MAP submission to the date on which a case is initiated (in months): the purpose is to collect data for the period between the date of submission by a taxpayer of a request for AC MAP and the date on which the case is initiated (i.e. the case has been considered as well-founded by a CA on the basis of 6.3(g) of CoC). The date of submission is the date the request is received by the tax administration.  Cases are divided in three categories: period between 0 and 6 months; period between 6 and 12 months; period beyond 12 months. Only cases submitted in the reporting MS should be included. "Date of AC MAP submission" should be understood as the date on which the request was received by the tax administration regardless of whether it already contained the necessary minimum information. If the request did indeed contain the necassry minimum information, the case could be considered as well-founded and could be initiated immediately. Such cases would fall under coulumn C ("0-6 months").FYear MAP cases were initiatedNumber of casesTime from the date of AC MAP submission to the date on which a case is initiatedIf more than 12 months between submission and initiation: reasons for the delayTABLE 5: Estimated amounts of tax involved in casesMember State: Year XNumber of pending casestotal amount involvedaverage per case up to 10,00010,000 - 100 000€100 000 - 1 million€1-10 million€10-100 million€> 100 million€