Directive on Tax Dispute Resolution Mechanisms

At a recent ECOFIN meeting, consensus was reached on adopting a new Council Directive on Tax Dispute Resolution Mechanisms in the European Union. The Directive will be formally adopted after receipt of the European Parliament’s opinion. The author discusses some highlights of the (nearly) adopted Directive.


The Directive will be titled “Council Directive on Tax Dispute Resolution Mechanisms in the European Union” (Doc. 9420/17 FISC 111 Ecofin 429, available here). [I will refer to this instrument as ‘Directive’, notwithstanding it is still to be formalyl adopted by the Council.]

There was an urgent need for an effective international tax dispute resolution mechnisms, as existing measures were deemed to be unsatisfactory:

  • The Mutual Agreement Procedure (‘MAP’) as included in Art. 25 of the OECD Model lacked specified time limits, was time-intensive and generally lacked any attention for taxpayers’ rights, such as the right to a fair trial. The OECD already recognized these problems back in 2007, and proposed the insertion of a mandatory binding arbitration clause (Art. 25(5) OECD Model). In practice, however, this provision is rarely inserted in tax treaties.
  • The EU Arbitration Convention (90/436), has its strengths, but only has a very limited scope (it only applies to transfer pricing disputes). In practice, many problems emerged when applying the Convention, which were partly solved in the Code of Conduct (a soft law instrument). In general, it is considered that the EU Arbitration Convention is not very effective.

In the wake of BEPS Action 14 (“Making Dispute Resolution Mechanisms More Effective“), the EU aimed to develop more efficient and effective double taxation dispute resolution mechasnisms, which would apply throughout the EU. An earlier proposal (the Directive on Double Taxation Dispute Resolution Mechanisms in the European Union) was rejected, because political consensus could not be reached (COM(2016) 686 final, available here). This blogpost aims to highlight the main features of the new Directive, while at the same time emphasising the differences with the earlier proposal. Note that Joris Luts and myself have published an extensive article discussing the features of the earlier proposal, and that the findings in that article can of course be applied mutatis mutandis to the new Directive, see F. DEBELVA & J. LUTS, “The European Commission’s Proposal for Double Taxation Dispute Resolution: Turning the Tide?”, Bulletin for International Taxation 2017 (Volume 71), No. 5.


  • Material Scope: While the earlier proposal applied to any dispute between Member States regarding double taxation of income from business, the mechanisms of the new directive are only applicable in situations in which different Member States interpret or apply differently the provisions of tax treaties or the EU Arbitration Convention (Art. 1). Any dispute not covered by those two types of instruments thus fall outside the scope of the Directive.
  • Types of taxes: The old proposal only applied to specific types of taxes, which were listed in the annex to the proposal. The Directive is drafted differently, and applies to taxes on income and capital.
  • Double Taxation: the old proposal aimed to eliminate ‘double taxation of income from business’, defined as (i) the imposition of a business tax; (ii) in two (ore more) jurisdictions; (iii) in respect of the same taxable income of capital, giving rise to an additional tax, an increase in tax liabilities, or the cancellation of, or a reduction in losses. The new proposal, however, does not require any double taxation to occur in order for the Directive to be applicable. This is confirmed by the relevant room documents (doc. 9011/17 FISC 99). The Directive, however, stipulates that – on a case by case basis – a Member State may deny access to the dispute resolution procedure where the question of dispute does not involve double taxation. This opening, however, allows dispute resolution to take place when Member States disagree on the application of so-called ‘procedural provisions‘ of tax treaties, such as discussions on a wrongful application of the exchange of information procedure (Art. 26 OECD Model) in tax treaties, or cases of ‘virtual double taxation’ (i.e. cases where a contracting state does not exercise taxing rights, and the other contracting state decides to tax the income, despite having to exempt the income on the basis of the treaty).
  • The Directive itself shall apply to complaints submitted from July 1, 2019 onwards on questions of dispute relating to income and capital earned in a tax year commencing on or after January 1, 2018.


The adopted proposal contains a four-step procedure. Similar to the previous proposal, it emphasises on the Member States reaching mutual agreement amongst themselves, before providing for a stage of mandatory dispute resolution.

  1. Complaint: The complaint phase is quite technical. If the complaint is accepted by the competent authorities of all states concerned, phase 2 is initiated. If only one state accepts, the complaint is submitted to an advisory committee, which can decide on the admissibility. If, however, all states concerned dismiss the complaint, the taxpayer can, as a measure of last resort, file a complaint before the competent national courts in order to reach a reversal of the decision of the competent authorities. The Directive foresees several scenarios in the latter case.
  2. Mutual Agreement Procedure: If the complaint is accepted, the Member States shall endeavour to resolve the dispute within two years. That period of two years may be extended up to one year by one of the competent authorities concerned, if it provides justification in writing.
  3. Dispute resolution: Failure to resolve the dispute by mutual agreement (as well as cases where the complaint is only accepted by one state), will lead to the dispute resolution phase. The dispute will then be solved by an ‘Advisory Commission’ (consisting of a chair, representatives of the states concerned, as well as independent persons). The competent authorities may, however, also agree to set up an ‘Alternative Dispute Resolution Commission’, which can apply other types of dispute resolution, such as ‘last best offer’ arbitration.
  4. Final Decision: After the Advisory Commission has issued an opinion, the last phase is initiated. The competent authorities must agree within six months on how to resolve the dispute. This implies that they may deviate from the decision of the Advisory Commission. However, if they fail to reach an agreement as to how to resolve the dispute, the states shall be bound by the decision of the Advisory Commission.


It is clear that this directive is a ‘second best’ solution in several ways. It does not aim to establish a harmonisation of substantive tax law, nor does it aim to prevent tax disputes from arising. It does, however, establish a new procedural route to resolve disputes which have arisen in the application of tax treaties and the EU Arbitration Convention.

It is also clear, in my opinion, that this directive does not entail the repeal of the existing EU Arbitration Convention, as suggested by some scholars. Quite the contrary, the application of the adopted proposal is partly dependent on the application of the Arbitration Convention.

The Directive also brings another interesting issue to the fore. As is well-known, Art. 273 TFEU allows the Member States to seize the CJEU to settle a dispute between them relating to the subject-matter of the EU Treaties. In the recent case C-648/15 Austria v. Germany, the CJEU was asked for the first time resolve a dispute on the interpretation of the tax treaty between Austria and Germany, which makes use of the Art. 273 TFEU procedure. Theoretically, the application of this procedure will remain an option, even after the Directive has entered into force. Note, however, that Article 15(5) of the new Directive stipulates that the submission of a complaint under the new directive shall put an end to any other ongoing dispute resolution procedure. This would then arguably includes any pending procedures on the basis of Article 273 TFEU.

In conclusion, the final solution adopted by the Directive is far from perfect. There are still some issues with taxpayers’ rights (in some cases, the procedural rights of the taxpayer are absent (MAP stage) or depend on the will of the contracting states (dispute resolution stage)). It should also be noted that the Directive does not provide a solution for some of the most problematic cases. Indeed, currently only 370 out of a possible 378 tax treaties has been concluded within the EU. For those cases, the Directive does not offer a solution given its limited material scope.

Further reading:

  • On the old proposal

L. CERIONI, The Commission’s Proposal for a Directive on Double Taxation Dispute Resolution Mechanisms: Overcoming the Final Hurdle of Juridical Double Taxation Within the European Union?, 57 European Taxation 5 (2017)

F. DEBELVA & J. LUTS, “The European Commission’s Proposal for Double Taxation Dispute Resolution: Turning the Tide?”, 71 Bulletin for International Taxation 5 (2017) (Volume 71), No. 5. (2017)

  • On the new proposal

F. DEBELVA & J. LUTS, “Richtlijn inzake geschillenbeslechting”, Internationale Fiscale Actualiteit nr. 2017/08 (on the adopted directive)






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