Documents considered by the Committee on 7 December 2016 Contents

7Taxation: double taxation dispute resolution

Summary and Committee’s conclusions

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested

Document details

Proposed Council Directive about double taxation dispute resolution in the EU.

Legal base

Article 115 TFEU, special legislative procedure, unanimity.

Department

HM Treasury

Document Number

(38214), 13732/16 + ADDs 1–3, COM(16) 686

7.1Double taxation arises when two countries both tax the same income or capital. This can create obstacles for business operating cross border and have a negative impact on cross border investment. The Commission has proposed a Council Directive to lay down rules which would provide mechanisms for resolving disputes between Member States’ tax authorities about how double taxation should be eliminated in a business context.

7.2The Government, telling us that it supports the proposed Council Directive, says that it believes that double taxation is a serious obstacle for businesses operating across borders and for international investment, and is committed to improving double tax dispute resolution mechanisms.

7.3The Government does not suggest that there is any problem for the UK with this proposed Council Directive. However before considering the matter again we should like to hear from the Government on two points. We wish to know how the Government envisages double taxation agreements working, particularly in relation to dispute resolution, with the remaining Member States post-Brexit. We wish also to hear about whether the Government expects any difficulties to arise during negotiation of the proposed Council Directive. Meanwhile the document remains under scrutiny.

Full details of the document

Proposed Council Directive on Double Taxation Dispute Resolution Mechanisms in the European Union: (38214), 13732/16 + ADDs 1–3, COM(16) 686.

Background

7.4Double taxation arises when two countries both tax the same income or capital. This can create obstacles for business operating cross border and have a negative impact on cross border investment.

The document

7.5The Commission proposes a Council Directive to lay down rules which would provide mechanisms for resolving disputes between Member States’ tax authorities about how double taxation should be eliminated in a business context. The proposal builds on the existing dispute resolution mechanisms in bilateral tax treaties and the EU’s Convention on the elimination of double taxation in connection with the adjustments of profits of associated enterprises (90/436/EEC).10

7.6The proposed Council Directive would exclude from its scope income which is subject to a zero rate or tax exemption, and would not preclude the application of national or international rules to prevent tax evasion, tax fraud or abuse. It envisages three stages in the dispute resolution process:

7.7On the first “complaint” stage, the proposal would:

7.8Where a complaint is admissible by both tax authorities, the second “mutual agreement procedure” stage is reached. The proposal would place an obligation on the Member States’ tax authorities to endeavour to eliminate the double taxation by agreement within two years. The “dispute resolution” stage would occur where the Member States had failed to reach agreement to eliminate double taxation. The proposal would:

7.9The Commission would be assisted by a Committee on double taxation dispute resolution and would have several roles under the proposed Council Directive:

7.10There are two annexes to the proposed Council Directive. Annex I lists the relevant taxes of each Member State for the purposes of the proposal. Annex II provides a template for Rules of Functioning for Advisory Commissions.

7.11An accompanying Commission Staff Working Document provides an impact assessment, which considers the policy context, objectives of the policy and options that were considered in arriving at the proposal and includes consultation results.

The Government’s view

7.12In her Explanatory Memorandum of 28 November 2016 the Financial Secretary to the Treasury (Jane Ellison) says that the Government supports the proposed Council Directive. She explains that it believes that double taxation is a serious obstacle for businesses operating across borders and for international investment, and is committed to improving double tax dispute resolution mechanisms.

7.13The Minister, noting that mandatory binding arbitration would be provided in the proposal by the Advisory Commission, comments further that the Government believes that broad scope mandatory binding arbitration, by which taxpayers can ensure that double taxation will be eliminated through an enforceable decision, is an important tool to encourage and facilitate the resolution of double tax disputes. She notes that mandatory binding arbitration provisions are found in several of the UK’s double tax treaties. The Minister continues that, in addition, the Government publicly committed to implement and adopt mandatory binding arbitration as a way to resolve disputes in the October 2015 report on Action 14 (Making Dispute Resolution Mechanisms More Effective) of the OECD’s Base Erosion and Profit Shifting project.11 Finally, she adds that the Government is also supportive of the clear time limits provided in the proposed Council Directive.

Previous Committee Reports

None.


10 See 90/436/EEC.




9 December 2016