16Double taxation: dispute resolution
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Committee’s assessment |
Politically important |
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Cleared from scrutiny |
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Document details |
Proposal for a Council Directive on Double Taxation Dispute Resolution Mechanisms in the European Union |
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Legal base |
Article 115 TFEU; special legislative procedure; unanimity |
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Department |
Treasury |
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Document Number |
(38214), 13732/16 + ADDs 1–3, COM(16) 686 |
Summary and Committee’s conclusions
16.1The previous Committee held a proposed Council Directive about double taxation dispute resolution between EU Member States under scrutiny from December 2016. Most recently, in March 2017, it asked, before considering again a request for scrutiny clearance, for news of developments on two outstanding issues—the scope of the proposal and the composition of a body to resolve disputes.129
16.2We have now been told that, prior to adoption of a general approach by the Council in May 2017, which the Government supported, an acceptable compromise on the two outstanding points was secured. The European Parliament subsequently delivered its non-binding opinion on 6 July, and the Council formally adopted the Directive on 10 October 2017. The new legislation was published in the Official Journal on 14 October.
16.3We note the Government’s account of where matters stood on the two outstanding issues, when the Member States reached agreement on the legal text. On the basis of that account, and the formal adoption of the Directive in October, we now clear the document from scrutiny.
16.4We have also considered the new Directive in view of the UK’s withdrawal from the EU. As the legislation will apply from June 2019, it will not in principle govern any double taxation disputes between the UK and one of the EU-27 countries, unless the Prime Minister’s “implementation period”, should one be agreed, extends the applicability of the acquis to the UK for its duration. The Directive makes no provision for participation by non-EU countries in the dispute settlement mechanism it creates.
16.5In view of the fact that the dispute resolution system created by the Directive is entirely new, it is not possible to judge what consequences Brexit will have for UK cooperation with the remaining Member States in this area. We look forward to further announcements by the Government in due course about its proposals for cooperation on tax matters with the EU post-Brexit.
Full details of the documents
Proposal for a Council Directive on Double Taxation Dispute Resolution Mechanisms in the European Union: (38214), 13732/16 + ADDs 1–3, COM(16) 686.
Background
16.6The previous Committee held under a scrutiny a proposed Council Directive about resolving disputes between Member States on how double taxation should be eliminated in a business context from December 2016.
16.7In March 2017, when they last considered the proposal, the Government told our predecessors that although there had been progress in negotiating the matter, two issues remained outstanding. These were the exact scope of the double taxation to which the Directive should apply and the composition of the “Advisory Commission” which would settle disputes. Nevertheless, the Government asked the previous Committee to clear the document from scrutiny against the possibility that the Presidency might wish to achieve a political agreement at the May 2017 ECOFIN Council.
16.8While our predecessors noted the progress that had been made on this proposal, they wished to have news of developments on the two outstanding issues before considering clearance from scrutiny. Meanwhile the document remained under scrutiny.
The Minister’s letter of 19 June 2017
16.9The Financial Secretary to the Treasury (Mel Stride) has now told us that on 23 May 2017, the Economic and Financial Affairs Council (ECOFIN) agreed the proposed Council Directive. He said that due to the unexpected dissolution of Parliament before the general election, the Government had not received scrutiny clearance from the previous Scrutiny Committee when this proposal went for a general approach at ECOFIN. He explained that the Government decided to override the scrutiny reserve resolution and support the proposal on the following grounds:
- its support for this file was well-established, as is its support in general for the availability of effective mechanisms for resolving double tax disputes, which were already in many of the UK’s double tax treaties;
- the implementation date, July 2019, was after the expected Brexit date; and
- as unanimity was required, a failure by the UK to agree would have prevented the proposal from going ahead.
16.10Turning to the two points that had remained unresolved, the Minister said that:
- the Government had supported the scope remaining as wide as possible, and for membership of Advisory Commissions to be open to a range of practitioners, including those providing commercial tax advice;
- compromise positions were reached on both issues in the run-up to ECOFIN, which the Government accepted;
- the Council opted for a broad scope but with the possibility, on a case-by-case basis, of excluding disputes that did not involve double taxation—without such a concession, agreement remained uncertain;
- the Council agreed that Member States could object to arbitrators on a number of grounds where independence was in question, for instance where an arbitrator was an employee with an enterprise that provided tax advice on a professional basis (or was in such a situation at any time during a period of at least three years prior to the date of the appointment);
- a general approach was agreed on this basis;
- it should be noted that following a statement in the Council minutes at ECOFIN, further work might now also be undertaken by Member States to explore the possibility of establishing a permanent committee to resolve disputes; and
- the UK would, however, in no way be bound to agree to any subsequent proposals.
16.11The Minister added that:
- whilst it would clearly have been preferable for the usual parliamentary scrutiny process to be completed ahead of agreement at ECOFIN, the Government believed it was in the national interest to override the scrutiny reserve;
- he wished to reiterate the Government’s commitment to the parliamentary scrutiny process; and
- he asked us to take into account the exceptional circumstances in this instance.
Previous Committee Reports
Thirty-seventh Report HC 71–xxxv (2016–17), chapter 2 (29 March 2017); Thirty-second Report HC 71–xxx (2016–17), chapter 5 (22 February 2017) and Twenty-second Report HC 71–xx (2016–17), chapter 7 (7 December 2016).
129 The detail of the proposal is set out in more detail in the previous Committee’s Report of 7 December 2016.
22 December 2017