Clearer rules for cross-border tax dispute resolution
In the autumn of 2017, the long-awaited EU directive on tax dispute resolution mechanisms in the European Union was passed. It aims to unify international cooperation in the resolution of tax disputes mainly arising from interpretation ambiguities or from different approaches of individual states in applying international treaties or setting transfer prices. Usually, an unresolved dispute results in a taxpayer’s double taxation.
At the moment, the regulation of cross-border tax dispute resolution is rather fragmented. On the one hand, it is based on rules contained in individual double taxation treaties usually providing for the settlement of disputes by mutual agreement – a mutual agreement procedure or MAP; on the other hand, the Arbitration Convention also provides for tax arbitration outside of mutual agreement procedures.
Presently, if any measure adopted by one or a number of states results or could result in double taxation, taxpayers may, apart from using standard national remedies, also approach a competent authority in their state. This authority will then endeavour to eliminate the dispute, by itself or in collaboration with the corresponding authorities of other states. This procedure remains unchanged by the directive but should be codified in a new procedural rule. Member states have to transpose the directive into national legislation by the middle of next year.
In August of this year, the Ministry of Finance released the bill on international cooperation in tax dispute resolution for interdepartmental comments. The act is expected to enter into effect on 30 June 2019. The bill mainly sets clear deadlines for tax dispute resolutions, and introduces the concept of an ‘independent person of standing’. The independent person will be involved in dispute resolutions where the member states’ competent authorities fail to reach an agreement. In the Czech Republic, the list of independent persons will be maintained by the Ministry of Finance.
The new law is to comprehensively regulate the procedure of amicable settlement of all cross-border tax disputes, also including disputes involving states outside the European Union. For EU states, some additional concepts will apply, such as access to tax arbitration. Apart from regulating the process itself, the new act should also clarify how it relates to other proceedings, including administrative justice (judicial review of administrative decisions). In this respect, the codification will be surely welcome by taxpayers, as it will provide more legal certainty in this area.