CELEX: 51976PC0611
Language: en
Date: 1976-11-24
Title: PROPOSAL FOR A COUNCIL DIRECTIVE ON THE ELIMINATION OF DOUBLE TAXATION IN CONNECTION WITH THE ADJUSTMENT OF TRANSFERS OF PROFITS BETWEEN ASSOCIATED ENTREPRISES ( ARBITRATION PROCEDURE )

No C 301/4                          Official Journal of the European Communities                               21.12. 76
                                                           II
                                                   (Preparatory Acts)
                                              COMMISSION
              Proposal for a Council Directive on the elimination of double taxation in connection
              with the adjustment of transfers of profits between associated enterprises (arbitration
                                                       procedure)
                       (Submitted by the Commission to the Council on 29 November            1976)
THE COUNCIL OF THE EUROPEAN COMMUNITIES,                       submitted to the tax authorities of the two Member
                                                               States concerned with a view to their settling the
Having regard to the Treaty establishing the                   question by mutual agreement; whereas, in the
European Economic Community, and in particular                 absence of such agreement, the matter in dispute
Article 100 thereof,                                           should be submitted to a commission, consisting both
                                                               of representatives of the tax authorities concerned
                                                               and of independent persons of standing, whose
Having regard to the proposal of the Commission,               decision both the tax authorities and the enterprises
                                                               concerned accept from the outset,
Having regard to the opinion of the Economic and
Social Committee,
                                                               HAS ADOPTED THE PRESENT DIRECTIVE:
Having regard to the opinion of the European
Parliament,
                                                                                        Article 1
Whereas, when a Member State increases the taxable
                                                               1.    Where:
profits of an enterprise on the ground that they have
been reduced as a result of conditions agreed with an
associated enterprise in another Member State, which           — the amount of the taxable profits of an enterprise
differ from those that would have been agreed                      is increased or is likely to be increased by the tax
between independent enterprises, such an increase                  authority of a Member State on the ground that
may give rise to double taxation within the group of               the profits in question have been reduced as a
enterprises of which the first enterprise forms part;              result of conditions agreed for transactions
                                                                   carried out with an associated enterprise which
                                                                   differ from those which would have been agreed
Whereas this double taxation is likely to cause                    between independent enterprises, and
distortions in the conditions of competition and in
capital movements and therefore to affect the
operation of the common market;                                — double taxation results or is likely to result from
                                                                   this increase,
Whereas, for this reason, it is necessary to ensure the
                                                               each      of   the    associated     enterprises    may,
elimination of the double taxation which occurs in
                                                               notwithstanding the remedies provided by the national
these circumstances;
                                                               laws of the Member States concerned, present its case
                                                               to the tax authority entrusted with the taxation of its
Whereas such elimination may be achieved through a             profits derived from the said transactions, with a
procedure under which, in the first place, the case is         view to eliminating the double taxation.
 ---pagebreak--- 21.12. 76                             Official Journal of the European Communities                           No C 301/5
The case must be presented before the expiry of three            2.      Unless the tax authorities concerned otherwise
years from the delivery of the first written                     agree, paragraph 1 shall not apply unless the
notification of the increase.                                    associated enterprises also agree from the outset to
                                                                 accept the decision of the commission.
The tax authority to which the case has been
presented shall inform the other tax authority                   Where the domestic legislation of a Member State
concerned thereof without delay.                                 does not permit its tax authority to settle cases by a
                                                                 mutual agreement procedure where such settlement
2.    For the purposes of this Directive:                        would be contrary to a decision of a judicial body,
                                                                 paragraph 1 shall not apply unless the associated
(a) a transaction carried out by an enterprise shall be          enterprises have allowed the time provided for appeal
    considered to be carried out with an associated              to expire or have withdrawn any appeal already made.
    enterprise if it is carried out either directly with         For the purposes of the preceding sentence, 'appeal'
    an enterprise, resident in another Member State,             means an appeal to the first appeal body in the
    which is associated with the first enterprise or             judicial process either against the decision concerning
     through a permanent establishment, situated in              the increase or against the decision concerning
     another Member State, of an enterprise                      the taxation of the associated enterprise to which a
     associated with the first enterprise;                       corresponding adjustment might be made.
(b) enterprises shall be considered to be associated:
                                                                 3.      The tax authorities may, by mutual agreement
    — where one of the enterprises participates                  and with the agreement of the associated enterprises
          directly or indirectly in the management,              concerned, waive the provisions of paragraph 1.
          control or capital of the other enterprise, or
     — where the same persons participate directly or            4.      In so far as the provisions of the preceding
          indirectly in the management, control or               paragraphs are not applied, the rights of each of the
          capital of the enterprises;                             associated enterprises, as laid down in Article 2 or in
                                                                 taxation agreements, shall remain unaffected.
(c) the term 'double taxation' means the situation in
     which an increase of taxable profits made in one                                      Article 4
     Member State as referred to in paragraph 1 does
     not give rise in the other Member State to a
     corresponding adjustment either of the taxable               1.     The commission referred to in Article 3 (1) shall
     profits of the associated enterprise or of the              consist of:
     amount of tax payable by the associated                     — an equal number of representatives from each of
     enterprise in respect of those profits.                           the tax authorities concerned,
3.    Paragraph 1 shall also apply, mutatis mutandis,            — an uneven number of independent persons of
where one or both of the associated enterprises or the                 standing, who shall be members of the tax
permanent establishment have made losses instead of                    authorities concerned nor be engaged in the
profits.                                                               performance of tasks or duties for or on behalf of
                                                                       those authorities.
                          Article 2                               The commission shall decide by simple majority.
If neither of the tax authorities is able on its own to           Subject to these provisions, the composition of the
arrive at a satisfactory solution of the problem                  commission shall be determined by agreement
presented to it, the two authorities shall endeavour to
                                                                  between the tax authorities of the Member States
reach mutual agreement with a view to avoiding
                                                                  concerned.
double taxation.
                                                                 2.      The independent persons of standing shall be
                          Article 3                               appointed by mutual agreement or, in the absence of
                                                                  agreement, by the drawing of lots by the tax
 1.    If, in applying Article 2, the tax authorities             authorities of the Member States concerned. Such
 concerned fail to reach an agreement that eliminates             persons may be appointed from the list of persons of
the double taxation, they shall present the case to a             standing referred to in paragraph 3. Any appointment
commission, whose decision they shall agree from the              made by the drawing of lots shall be made from such
outset to accept. The case shall be submitted to this            list.
commission within two years from the first of the
dates on which the case was presented to one of the              Where lots are drawn, each of the tax authorities
tax authorities in accordance with Article 1 (1).                 concerned may refuse to accept the appointment of
 ---pagebreak--- No C 301/6                           Official Journal of the European Communities                             21.12. 76
any particular independent person of standing in any            comply with any request by the commission to
circumstance agreed in advance between the tax                  provide such information or to present such evidence
authorities concerned or in one of the following                and documents.
situations, where:
— such person is, or has been, associated within the            2.     Each of the associated enterprises may, at its
      meaning of Article 1 (1) with one or both of the          request, appear or be represented before the
      associated enterprises or has been their employee         commission.
      or adviser, or
— such person does not offer a sufficient guarantee             If the commission so requests, each of the associated
      of objectivity for the settlement of the case or          enterprises shall appear or be represented before it.
      cases to be decided.
3.      The list of independent persons of standing                                      Article 6
shall contain all the persons nominated by the
Member States. For this purpose each Member State               The decision of the commission shall relate to the
shall, after consultation with professional bodies,             amount of double taxation which remains unrelieved.
nominate five persons and shall inform the                      The decision may relate to the increase referred to in
Commission of the European Communities thereof                  the first subparagraph of Article 1 (1), to the
within the period specified in Article 9 (1). Such              corresponding adjustment referred to in Article 1 (2)
persons shall be nationals of a Member State. The                (c), or both to the increase and to the adjustment.
Commission shall communicate the list of the
independent persons of standing to each Member                  The decision, which shall be given in writing, shall
State.                                                          eliminate the said double taxation.
The Member States shall without delay inform the
Commission of any alterations to be made to the said            The tax authorities concerned may agree to publish
list.                                                           the decision.
4.      In their capacity as members of the commission,
the independent persons of standing shall be subject                                      Article 7
to the obligation of professional secrecy under the
conditions laid down by the domestic legislation of              1.    Without prejudice to the second subparagraph
each of the Member States concerned.                            of Article 3 (2), the fact that a decision made in one
                                                                Member State concerning the increase referred to in
5.      The commission shall appoint its chairman               the first subparagraph of Article 1, or a decision
from among the independent persons of standing                  made in another Member State concerning the
who are members of it.                                          taxation of the associated enterprise, to which a
                                                                corresponding adjustment within the meaning of
6.      The expenses of the proceedings of the                  Article 1 (2) (c) might be made, has become final,
commission, save for the expenses incurred by the                shall not prevent the application of the procedures set
associated enterprises, shall be shared equally                 out in Articles 2 and 3.
between the two Member States concerned.
                                                                2.     Where, in one or both of the Member States
7.      Without prejudice to paragraphs 1 to 6, the tax
                                                                concerned, the decisions regarding the taxation giving
authorities may agree upon further rules of procedure
                                                                rise to the procedures referred to in Articles 2 and 3
in their bilateral relations.
                                                                have been altered after the procedure referred to in
                                                                Article 2 has been concluded or after the commission
8.      Member States shall take all necessary steps,
                                                                has given its decision, the result of that procedure
within sufficient time, to ensure that the case is
                                                                and that decision of the commission shall be revised
presented to the commission within the period
                                                                to take account of such alteration in the taxation.
specified in Article 3 (1), and that the commission
meets thereafter without delay.
                                                                                         Article 8
                           Article 5
                                                                 1.    The foregoing provisions shall also apply
1.      For the purpose of the procedures referred to in        mutatis mutandis to the allocation of the total profits
Articles 2 and 3, each of the associated enterprises            of an enterprise between the headquarters of the
may provide all information or present all evidence             enterprise situated in one Member State and one or
 and all documents which may be of use in reaching a             more of its permanent establishments situated in one
decision. The enterprises and the tax authorities shall         or more other Member States, and also to the
 ---pagebreak--- 21.12.76                           Official Journal of the European Communities                          N o C 301/7
relations between different permanent establishments          establishment may be regarded and the corre-
of an enterprise which are situated in different              sponding adjustment referred to in Article 1 (2) (c).
Member States.
                                                                                      Article 9
2.    Where in a Member State in            which   the
headquarters of an enterprise is situated:
                                                              1.    Member States shall bring into force the
— the profits attached to a permanent establishment           necessary laws, regulations and administrative
    of such enterprise, situated in another Member            provisions to comply with the provisions of the
    State, are taxed,                                         Directive not later than 1 January of the second year
                                                              following the year of its adoption, and shall
    and where                                                 immediately communicate them to the Commission.
— in taxing such profits a relief is granted which            2.    Member States shall ensure that the texts of any
    only partly takes account of the amount of the
                                                              further main provisions of national law adopted in
    taxable profits of the permanent establishment in         the field covered by this Directive are communicated
    the other Member State or of the amount of tax            to the Commission.
    payable in that other Member State on the same
    profits,
                                                                                     Article 10
the relief given consequent upon the increase in the
amount of the taxable profits of the permanent                This Directive is addressed to the Member States.