Double taxation disputes, the EU provides new rules

Paolo Besio on double taxation

In an article published in the magazine “Le Fonti Legal”, Paolo Besio commented on double taxation disputes and on new rules introduced by the European Union on this subject.

A recent EU Directive has introduced some tax dispute resolution mechanisms that will have to be implemented by Member States by June 2019. In the opinion of Italian tax experts, this mechanisms will be useful to reduce disputes, which currently account for 10.5 billion Euros.

The purpose of the new mechanisms is to reduce litigation between two or more EU States through a unified procedure aimed at preventing different interpretations and applications of the provisions included in bilateral tax agreements and conventions. These mechanisms have been introduced by Council Directive no. 2017/1852, published in the Official Journal of the European Union no. L265 on 14 October and will have to be implemented by Member States through a series of laws and regulations by 30 June 2019.

In fact, according to the latest EU data, there are 900 pending double taxation disputes in the EU, having an equivalent value of 10.5 billion Euros.

According to Paolo Besio, partner at Bernoni Grant Thornton, the mechanisms will hopefully eliminate double taxation in a suitable time compared to businesses’ needs. Positive aspects of such provision are the introduction of automatic mechanisms aimed at guaranteeing an efficient proceeding and certainty of the result, as well as the extension of its scope to different double taxation situations, thus not limiting it to transfer pricing cases.

On the other hand, problems related to such mechanisms concern its actual and timely working, considering that proceedings are handed over to courts in case of non-compliance by the Tax Authorities. It would be advisable to review the mechanism regularly, to ensure an increasing efficiency and effectiveness of the directive.

Moreover, stated Paolo Besio, those problems causing long and uncertain MAPs in Italy are affecting almost all competent authorities. The first problem concerns insufficient personnel compared to required procedures, which will increase following the implementation of BEPS actions and the increasing inspection activity by Tax Authorities.

As per Budget Law 2018, Italy will respond to this problem by hiring hundreds of officers to clear up pending cases and manage future ones more efficiently. The second problem infrequent exchange of position papers and meetings to discuss the cases. To clear up pending cases and manage future ones, it is necessary to keep a more constant flow and to reach agreements through alternative communication means. However, the involvement of the taxpayer in all phases of the procedure cannot be disregarded.