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Elimination of double taxation (arbitration)

The Member States have adopted a Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises.

ACT

Convention 90/436/EEC on the elimination of double taxation in connection with the adjustment of transfers of profits between associated undertakings.

SUMMARY

There is at present no formal obligation on Member States to eliminate double taxation (bilateral conventions merely require the parties to make every effort to do so).

When double taxation arises, the firm affected presents its case to the tax authorities concerned; if those authorities cannot solve the problem satisfactorily, they endeavour to reach mutual agreement with the authorities of the Member State where the associated firm is taxed.

If no agreement can be reached, the authorities present the case to an advisory commission, which suggests a way of solving the problem.

Although the tax authorities may subsequently adopt, by mutual agreement, a solution different from that suggested by the advisory commission, they are bound to adopt the commission's advice if they cannot reach agreement.

The commission consists of a chairman, two representatives from each of the tax authorities concerned, and an even number of independent members.

On 21 December 1995 the Council adopted a Convention on the accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden to the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises. The Convention allows Austria, Finland and Sweden to accede to the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises following their accession to the European Union. This Convention will come into force, between the States which have ratified it, on the first day of the third month following the deposit of the last instrument of ratification by the Republic of Austria, the Republic of Finland or the Kingdom of Sweden and by one State which has ratified the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises. It enters into force for each Contracting State which subsequently ratifies it on the first day of the third month following the deposit of its instrument of ratification.

On 25 May 1995 the Council adopted a Protocol amending Convention 90/436/EEC extending it for further periods of five years at a time. The Protocol enters into force on the first day of the third month following the deposit of the instrument of ratification, acceptance or approval by the last Contracting State complying with this formality. It entered into force on 1 January 2000.

As not all Member States have ratified the Protocol extending the Arbitration Convention, the Convention ceased to have effect in 2000. Consequently, enterprises can currently only avail of the dispute settlement provisions of double taxation conventions which do not impose any binding obligation to eliminate double taxation, unlike the Arbitration Convention.

REFERENCES

ActEntry into forceDeadline for transposition in the Member StatesOfficial Journal
Convention 90/436/EEC1.1.1995-OJ L 225 of 20.8.1990

RELATED ACTS

Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee on the work of the EU Joint Transfer Pricing Forum in the field of dispute avoidance and resolution procedures and on Guidelines for Advance Pricing Agreements within the EU [COM(2007) 71 final - Not published in the Official Journal].

Resolution of the Council and of the representatives of the governments of the Member States, meeting within the Council, of 27 June 2006 on a code of conduct on transfer pricing documentation for associated enterprises in the European Union [Official Journal C 176 of 28.7.2006].

Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee on the work of the EU Joint Transfer Pricing Forum on transfer pricing documentation for associated enterprises in the EU [COM(2005)543 - Not published in the Official Journal].

Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee on the work of the EU Joint Transfer Pricing Form in the field of business taxation from October 2002 to December 2003 and on a proposal for a Code of Conduct for the effective implementation of the Arbitration Convention (90/436/EEC) [COM(2004) 297 - Not published in the Official Journal].

The Commission proposes that a Code of Conduct be adopted to ensure more effective and more uniform implementation of the 1990 Arbitration Convention by Member States to eliminate double taxation of enterprises carrying out intergroup operations. The Code of Conduct proposed is the result of work by the EU Joint Transfer Pricing Form. The Commission also intends to adopt procedural rules (concerning the starting points for the periods for dealing with complaints, the procedural rules of the advisory commission to be drawn up by the Member States if no agreement can be reached on the elimination of double taxation within two years and the suspension of tax collection pending dispute settlement) and recommends that the Member States apply these rules to the dispute settlement provisions of their bilateral double taxation agreements.

Last updated: 02.04.2007
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