26.07.2019

New rules for DTA-related dispute resolution

The Act on the Resolution of Disputes between Germany and other EU Member States (EU-Doppelbesteuerungsabkommen-Streitbeilegungsgesetz, EU-DBASBG) shall apply to all complaints about double taxation of income or capital, between EU states, that have been lodged since 1.7.2019. Here, the temporal scope of application of the EU-DBA-SBG shall cover cases that relate to tax periods beginning after 1.1.2018. The EU-DBASBG is currently still at the draft bill stage. In terms of its contents, the draft bill is closely based on the underlying EU directive. It can be assumed that this version of the Act will come into force.

Regulation of the competent authorities

With EU-DBA-SBG the legislators in Germany will be complying with Council Directive (EU) 2017/1852 of 10.10.2017 on tax dispute resolution mechanisms. As the EU-DBA-SBG is currently still at the draft bill stage and the above-mentioned EU Directive was however supposed to be implemented by 1.7.2019, the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) is planning retrospective applicability of the Act back to 1.7.2019.

 

Please note: As the EU-DBA-SBG will be an Act that works solely to the advantage of the taxpayer such a retroactive effect would be rated as being unproblematic.

 

The EU-DBA-SBG will provide for the Federal Ministry of Finance to be the competent authority in Germany that, in turn, will mandate the Federal Central Tax Office to perform the functions in accordance with the EU-DBA-SBG. The competent court will be the Cologne tax court, which is the locally competent one for the Federal Central Office. The dispute resolution mechanisms shall generally take priority over the mechanisms under a DTA or the EU Arbitration Convention.

Three-stage dispute resolution procedure

Lodging the dispute resolution complaint

In the first phase, the taxpayer that has been affected by a double taxation issue will have to file a request – simultaneously and with the same information – with each competent authority in the member states concerned in order to initiate a mutual agreement procedure. This request shall include:

  • the personal identifiers of the person concerned (name, address, tax identification number,...),
  • a list of the Member States concerned,
  • a statement about the tax periods to which the point at issue relates,
  • precise details of the important facts and circumstances of the case with copies of all supporting documents, and
  • references to national regulations and agreements.

Furthermore, the request has to include the stated opinion of the person concerned indicating the reasons why the point at issue exists. There is a three-year deadline here for lodging the complaint after the first notification of the action (e.g. issue of a tax assessment notice) that ultimately gave rise to the point at issue. A decision by the respective competent authorities as to whether to accept or reject the complaint should generally be made within six months by the competent authorities in the EU states.

Phase 2 – Mutual agreement procedure

Once the competent authorities in the EU states concerned have made known to the person concerned as well as the other competent authorities concerned that they have accepted the dispute resolution complaint then the point at issue should be resolved within two years using a mutual agreement procedure. As soon as the competent authorities reach an agreement on the point at issue then the Federal Central Tax Office shall immediately notify the taxpayer about the agreement. The notification shall be made even if the authorities have not been able to agree.

Arbitration procedure with an advisory commission

If the competent authorities are not able to come to an agreement in the course of the mutual agreement procedure then, upon request by the taxpayer, an arbitration procedure will follow. In this third phase, the contentious issue will be presented to the so-called advisory commission, which will issue an opinion on how, in its view, the case should be resolved. As this so-called advisory commission is a key element of the draft bill, the EU-DBASBG also lays down more specific arrangements concerning the advisory commission procedures, such as: the composition, appointment term, rights to information and the rules of procedure.


The commission shall consist of a chairperson, a representative from every competent authority concerned and always an independent person from each EU state concerned. The independent persons will be chosen by each competent authority from a list that has to be forwarded by the latter. The opinion of the advisory commission will then be sent to the competent authorities in the EU states concerned. Subsequently, the competent authorities in the EU states concerned will decide once again how the point at issue should be resolved. In doing so, the competent authorities can follow the opinion of the advisory commission or else deviate from it.


As an alternative to resolving the point at issue through an advisory commission, the competent authority in Germany, together with the competent authorities in the EU states concerned, could appoint a commission for an alternative dispute resolution. This commission could also be appointed as a permanent body.

 

Please note: The draft of EU-DBA-SBG provides for simplifications for natural persons and smaller enterprises. For example, they will only have to lodge their dispute resolution complaints with the competent authority in their countries of residence.

 

RA [German lawyer] Frederic Schneider

From: PKF newsletter 07-08/2019