5Taxation: double taxation dispute resolution
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Committee’s assessment |
Politically important |
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Not cleared from scrutiny; further information requested |
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Document details |
Proposed Council Directive on double taxation dispute resolution mechanisms in the EU |
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Legal base |
Article 115 TFEU, special legislative procedure, unanimity |
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Department |
HM Treasury |
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Document Number |
(38214), 13732/16 + ADDs 1–3, COM(16) 686 |
Summary and Committee’s conclusions
5.1The Commission has proposed a Council Directive about resolving disputes between Member States on how double taxation should be eliminated in a business context. When, in December 2016, we considered this proposal we asked the Government how it envisages double taxation agreements working with the remaining Member States post-Brexit and whether it expects any difficulties to arise during negotiation of the proposed Council Directive.
5.2The Government now tells us that its bilateral agreement with each Member State will continue post-Brexit. It explains differences in these various bilateral agreements, in relation to dispute resolution, and of its expectation that the UK and the remaining Member States will eventually subscribe to an Organisation for Economic Cooperation and Development (OECD) convention on such dispute resolution. As for difficulties arising during negotiation of the proposed Council Directive, the Government tells us that there has been significant disagreement amongst Member States, including about whether a Council Directive was an appropriate method for improving resolution of double tax disputes and that the Maltese Presidency’s hope for a political agreement at the May 2017 ECOFIN Council meeting currently seems unlikely to be met.
5.3We are grateful to the Government for the information it now gives. However we retain the document under scrutiny, pending further accounts of Council consideration of the proposal.
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
5.4Double 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 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.
5.5When we considered this matter in December 2016 the Government, telling us that it supported the proposed Council Directive, said 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. It did not suggest that there is any problem for the UK with this proposed Council Directive. However before considering the matter again we asked to hear from the Government on two points. We wished to know how the Government envisaged double taxation agreements working, particularly in relation to dispute resolution, with the remaining Member States post-Brexit. We wished also to hear about whether the Government expected any difficulties to arise during negotiation of the proposed Council Directive. Meanwhile the document remained under scrutiny.
The Minister’s letter of 9 February 2017
5.6The Financial Secretary to the Treasury (Jane Ellison) tells us now that the UK has double taxation agreements with all the other Member States, which will continue to apply on withdrawal. She comments further that:
- each of these agreements contains a dispute resolution provision, a “Mutual Agreement Procedure” article;
- this requires tax authorities to endeavour to resolve disputes about taxation not in accordance with the agreement and provides for a similar process to that in the proposed Council Directive;
- six of the agreements (Belgium, France, Germany, Spain, the Netherlands and Sweden) also currently contain a mandatory binding arbitration provision which helps to ensure resolution of disputes;
- the Government anticipates that six further agreements with Member States (Austria, Ireland, Italy, Luxembourg, Poland and Slovenia) will be modified to include a mandatory binding arbitration provision over the next two to three years;
- this is a result of the UK and these states committing to implement and adopt arbitration, as in the report on Action 14 (Making Dispute Resolution Mechanisms More Effective) of the OECD’s Base Erosion and Profit Shifting (BEPS) project,17 and being a part of the group of countries which negotiated the text of an arbitration provision for inclusion in the multilateral convention which will modify tax treaties in order to implement BEPS recommendations;
- consequently, the Government expects that over 90% of new mutual agreement procedure cases with Member States after UK withdrawal will be with countries where the UK has some provision for arbitration in its double tax agreements;
- the remaining 10% of cases will still have access to the mutual agreement procedure as a method for endeavouring to resolve disputes; and
- the Government will also continue to encourage the remaining Member States to adopt provisions on mandatory binding arbitration in the UK’s double tax agreements with them, either through the multilateral convention or in bilateral tax treaty negotiations.
5.7As to whether the Government expects any difficulties to arise during negotiation of the proposed Council Directive, the Minister says that:
- the first Council working party meeting on the proposal was held on 18 January 2017;
- Member States discussed their general views on the proposed directive as well as the first two articles;
- difficulties did arise—there was significant disagreement amongst Member States, including about whether a Council Directive was an appropriate method for improving resolution of double tax disputes;
- the Government continues to support use of a Council Directive;
- it would provide more certainty to taxpayers than other options suggested by Member States at the meeting, such as a non-binding Commission Recommendation or an extension of the EU Arbitration Convention18 (which could take years to ratify);
- the Maltese Presidency has indicated that it would like the proposed Council Directive to be a priority during its term, and the proposal is on a draft agenda for possible political agreement at the May 2017 ECOFIN Council meeting; and
- such agreement currently seems unlikely.
Previous Committee Reports
Twenty-second Report HC 71-xx (2016–17), chapter 7 (7 December 2016).
24 February 2017