Malta Pushes for Solution on EU Double Tax Disputes

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By Joe Kirwin

European Union finance ministers May 23 will try to finalize legislation to establish an EU-wide mandatory arbitration scheme to resolve more than 900 double taxation disputes.

A potential hurdle to the deal on the pending EU Double Taxation Dispute Resolution Directive (DTDRD) could come from Germany and other EU countries that want to establish a possible role for the European Court of Justice or another “permanent structure” as a final arbiter in the disputes.

Meanwhile, other states, led by the U.K., oppose the inclusion of the ECJ and prefer to stick to the original proposal, which calls for ad-hoc “advisory commissions” that can referee double taxation disputes.

The scope of the pending DTDRD will cover all income streams, according to EU Malta officials, including more than 900 double taxation disputes between multinational companies and EU country tax authorities. The European Commission estimates the 900 cases involve 10.5 billion euros ($11.8 billion) in disputed tax demands.

Officials with current EU presidency holder Malta, which is also chairing the negotiations in the Council of Economic and Financial Affairs, told Bloomberg BNA they “are hopeful” the issue of the ECJ doesn’t block an agreement on May 23.

“Certain member states do favor the idea of a permanent structure,” an EU diplomat, speaking on the condition of anonymity, told Bloomberg BNA May 22. “At this stage it is not possible to properly gauge the implications of having the European Court of Justice as being the ideal permanent structure for this purpose. But there is some appetite to explore this possibility among others. A decision can only be taken once a proper evaluation is made.”

In advance of an EU finance minister meeting May 23, the EU presidency holder also put forward revisions to address concerns about the independence and competence of persons who would serve on advisory panels hearing tax disputes, according to a confidential document seen by Bloomberg BNA.

Scope Disputes

Since Malta took over the EU rotating presidency in 2017, finding a compromise on the scope of the DTDRD has been one of the most controversial issues in its efforts to get an accord by the end of June, when its term expires. The pending terms would include both commercial and individual double taxation disputes.

“It emerged early in the negotiation process that the disputes that should fall under the scope of the application of the directive were disputes arriving out of the interpretation and application of double taxation agreements between member states and the EU Arbitration Convention,” according to the Malta documents, copies of which were seen by Bloomberg BNA.

However, the Maltese presidency noted that some countries requested the option of excluding “smaller claims or claims brought by individuals or the exclusion of cases of abuse or settlement.”

In order to strike a compromise, Malta has proposed the following terms for the scope:

  • disputes between EU members would be covered when they arise from the interpretation and application of agreements and conventions that provide for the elimination of double taxation;
  • countries on a case-by-case basis may deny access to the dispute resolution procedure when the dispute doesn’t involve double taxation; and
  • cases not involving double taxation but relating to disputes where taxation hasn’t been levied would be guaranteed access only up to the mutual agreement procedure.

Binding Arbitration

Based on the terms of the directive, all disputes that fall within the scope would be subject to mandatory arbitration.

“The proposal put forward sets up an effective dispute mechanism that is mandatory and binding, through a mutual agreement procedure combined with an arbitration phase,” according to the Maltese presidency document. It adds that the arbitration phase includes a “clear time limit and an obligation to achieve a result for all member states.”

Malta has proposed a compromise regarding the individuals that will arbitrate disputes. They should be “independent persons of standing” but “need not be judges.” However, the chair of the advisory commission must be a judge “unless agreed otherwise by the representatives of the competent authorities and the independent persons,” according to the compromise language.

Pending CCCTB

The Maltese presidency will also call on EU members to give guidance on all issues relating to a pending proposal for a common corporate tax base (CCTB), which is supposed to be a prelude to a common consolidated corporate tax base (CCCTB).

The issues that EU finance ministers will be asked to comment on during a public debate revolve around new provisions that have been added to the first CCCTB proposal, which the European Commission made in 2011 but never progressed in the Council of Ministers.

Under the new CCTB-CCCTB provisions, all multinational companies with a turnover of 750 million euros based in the EU would be required to use the CCTB—and the CCCTB if it is approved. The provisions also include:

  • a super-deduction for research and development expenses to support innovation;
  • an allowance for growth and investment to address debt financing bias; and
  • a temporary cross-border loss relief mechanism that would be used until agreement is reached on the CCCTB.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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