COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE 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) 344 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE 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) 343 final}  
 
 
Executive Summary Sheet 

Impact assessment on improving Double Taxation Dispute Resolution Mechanisms (DTDRMs) 

A. Need for action 

Why? What is the problem being addressed?  

Double taxation of income by different Member States has a negative impact on cross-border 
investment and leads to economic distortions and inefficiencies creating an unstable environment for 
both taxpayers and tax administrations. Existing mechanisms for solving double taxation disputes in the 
EU, such as Mutual Agreement Procedures ('MAP') as part of Double Taxation Conventions ('DTC') or 
the EU Arbitration Convention on transfer pricing disputes ('EU-AC'), show several shortcomings in 
terms of scope, effectiveness and efficiency. Information available provides evidence for cases where 
access is denied, procedures are blocked or delayed or compliance burden for taxpayers is too high. 
The negative impact of these shortcomings is increasing due to globalisation trends, driven by the rise 
of cross-border transactions, the incremental number and size of tax audits and the overall complexity 
of tax rules. Currently there is often no obligation for Member States to ensure a definitive and 
conclusive resolution of disputes in a timely and efficient manner. In addition there is a lack of uniform 
application of dispute resolution within the EU.  

What is this initiative expected to achieve?  

The aim is to improve DTDRMs in the EU in order to ensure an effective and conclusive resolution of 
cases of double taxation disputes with a full elimination of the double taxation. The focus is on 
improving current mechanisms with the aim to create a reasonable timeframe for the procedure, a 
uniform and broader scope of application within the EU as well as increased efficiency and certainty in 
terms of implementation of the final decision. 

What is the value added of action at the EU level?  

The EU added value is grounded in the fact that uniform and coordinated implementation is necessary 
for effectively improving dispute resolution. It is also necessary to address them consistently in the 
current context of a global fight against tax avoidance and evasion. Such an initiative will create added 
value to the EU acquis in the area of taxation and in particular to the Transfer Pricing framework in 
terms of efficiency and enforceability when combined with the solution proposed. 

B. Solutions 

What legislative and non-legislative policy options have been considered? Is there a preferred 
choice or not? Why? 

Different options have been considered including  

recommendations to improve the functioning the existing DTDRM in the EU,  

 
  a recommendation to involve the Court of Justice of the EU as arbitrator in cases where no 

mutual agreement can be reached  

  a directive to ensure an enabling legal framework for the application of broadened DTDRM in 

the EU 

  a directive foreseeing a comprehensive new legal instrument with conflict rules and a DTDRM.  

Valuing the different options has led to a preferred option taking the form of a Directive. The 

2 

 
 
                                                                                                  
 
 
development of a comprehensive new legal instrument with specific conflict rules is regarded as less 
appropriate due to the fact that in nearly all bilateral relations such conflict rules already exist in DTC. 
An additional layer of conflict rules would rather be detrimental. Instead a directive proposal is chosen 
where the existing mechanisms will be combined with a mandatory binding arbitration phase as a last 
resort and a recourse given to taxpayers in front of domestic tax courts to unblock delays or denial of 
access to the procedure. The analysis shows that this option has clear advantages in terms of 
effectiveness and timeliness as it relies on the existing practices and would be advantageous compared 
to the alternative of not taking any action or issuing a recommendation .  

Who supports which option? 

The initiative has received general support from a business stakeholder group and from a number of 
Member States who are primarily concerned by the negative impacts. NGOs, private individuals and 
other respondents to the consultation did not express a negative position but in contrast underlined the 
rather positive impact of other initiatives such as the CCCTB. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?                                      

Implementation of the preferred option is expected to increase the fairness of tax systems and to create 
a level playing field by effectively removing double taxation in the EU. This would help to ensure that 
corporations pay a fair share of the tax burden and enhance the overall fairness of the tax systems. 
Furthermore, cross-border tax obstacles would be effectively eliminated within the EU. Substantial 
economic distortions would be reduced creating a favourable climate for growth and investment. There 
is no detailed quantitative data and projections available on these expected benefits at the level of the 
taxpayers or the Member States. However, the current size of cases under the existing DTDRM is 
estimated at 910 cases at the end of 2014 with EUR 10.5 billion at stake, corresponding to 3 % of the 
total corporate income tax levied in the EU for the year 2014 (EUR 351 billion).  

What are the costs of the preferred option (if any, otherwise main ones)?                                      

The costs of the proposal in terms of national tax revenue depend on the way Member States adjust 
their resources to comply with their obligations foreseen under the proposal. These costs should 
however be limited and not significantly differ from the costs currently encountered for DTDRM as the 
initiative is built on the existing acquis and an optimised combination with the overall EU Transfer 
Pricing framework. They should also trigger economies of scale as similar investment in resources and 
administration capacity will be required at the level of tax administrations to meet similar objectives at 
the international level (OECD BEPS Action 14). There is no quantitative data on the costs of 
administration for tax authorities available in the above described context.  

How will businesses, SMEs and micro-enterprises be affected? 

The initiative will affect all taxpayers with business income and create a more level playing field within 
the EU. It is designed to fit with SMEs particularities so as to give the possibilities for Member States 
to propose more appropriate alternative dispute resolution mechanisms (e.g. mediation) or fast track 
solutions. Overall, the proposed solutions offer benefits e.g. in terms of lower compliance costs and 
better efficiency. Consequently, the impact is positive. 

Will there be significant impacts on national budgets and administrations? 

3 

 
 
 
Overall in the medium term, the initiative should have positive consequences for investment, growth 
and jobs and a positive impact on future tax collection and consolidation of tax revenues is expected. 

Will there be other significant impacts? 

The initiative will improve the attractiveness of the EU as regards investment and is expected to 
increase the competitiveness of the EU overall because it will provide a more stable and certain basis 
for taking investment decisions. Business activities are expected to be more profitable and the economy 
more resilient. 

D. Follow up 

When will the policy be reviewed?  

The policy will be evaluated five years after its implementation. Such a period seems reasonable given 
that taxpayers and tax administrations need time to adjust in the management of their double taxation 
dispute cases and provide the relevant data.  

4