In this article, we look at the Dispute Settlement Directive in addition to the procedures under the DTA and EU-SchÜ. This concerns the interpretation of tax disputes. This procedure is intended to ensure an effective and efficient settlement of these disputes. How long the respective steps take and why it represents an improvement to the previous procedures can be found in the following article.

Tax enforcement usually means the enforcement of the tax claim that has arisen. The tax administration can invoke the tax procedural law, which begins, among other things, by setting the tax.

In the context of tax enforcement at European level, this is important several times. On the one hand, there is the need for cross-border cooperation, especially in the financial authorities, in order to allow for an adequate collection of taxes. In addition, it is often the case that taxpayers from other countries require appropriate information, which makes this exchange of information increasingly important, more extensive and also encouraged. However, this in turn means that the Union has the competence to take procedural action here. In the past, this has been done in particular through the VAT Cooperation Regulation and the EU Administrative Assistance Directive on the basis of Articles 113 and 115 TFEU.

On the other hand, harmonized tax law must continue to be pursued procedurally in the national context of the Member States. It is true that purely domestic taxation cases must also be covered, such as the VAT system directive or the ATAD directive. Since uniform tax enforcement is to take place in the EU, non-harmonised procedural law is a conflict here. The principle of procedural autonomy must therefore be restricted in order to ensure uniform implementation.

Now the principle of procedural autonomy states that EU Member States collect taxes through their own authorities and on the basis of their national laws. This is the case, for example, with sales tax by the state authorities.

In addition, in the case of the so-called indirect implementation, i.e. the implementation of harmonised taxes by the Member States, it applies that they can collect them just as effectively or even more effectively than the EU, since the necessary facilities are already in place. And the European Union usually has only the competence to enact substantive law. Furthermore, this enforcement is also referred to as indirect, since Article 288 TFEU requires the Directives to be transposed into national law.

1.3.1. General limits of procedural autonomy

There is a risk that the indirect implementation of Union law in the individual Member States will not ensure that it is carried out uniformly everywhere. However, in accordance with the principle of sincere cooperation enshrined in Article 4(3) TEU, the Member States are obliged to implement EU law and to refrain from taking divergent measures.

Based on the loyalty principle, however, the ECJ restricts the procedural autonomy of the Member States in permanent case law. On the one hand, the principle of effectiveness applies, according to which procedural law must not make it practically impossible or excessively difficult to exercise the rights conferred by the Union legal order. This results in a negative and a positive component. Existing obstacles to enforcement must therefore remain unapplied in individual cases and the Member State must nevertheless ensure effective enforcement.

Furthermore, the principle of equivalence stipulates that procedural modalities must not be less favourable than for corresponding national procedures. Accordingly, it can be concluded that this reveals the special form of the principle of equality or the prohibition of discrimination.

1.3.2. Lex Manninen as an example

A prime example is the provision of § 175 (2) sentence 2 AO in the Manninen case. § 175 (2) sentence 2 AO received the term lex Manninen. Accordingly, according to § 175 (2) sentence 2 AO, the subsequent issue or presentation of a certificate or confirmation is not considered a retroactive event for a taxable person. As a result, it was not possible to amend the tax assessment pursuant to Section 175(1), first sentence, No. 2 AO.

It is important to know that the German legislature introduced § 175 (2) sentence 2 AO in response to the decision of the ECJ in the Manninen case. Because the presentation of a foreign credit certificate is in the general understanding a retroactive event. Thus, the tax assessment of the domestic shareholder could have been amended and the foreign corporate tax could have been taken into account. Because of the special start-up inhibition in § 175 (1) sentence 2 AO, there would thus have been an unlimited and unwanted possibility of change. Thus, the legislature came before this and has also introduced § 175 paragraph 2 sentence 2 AO in order to avoid negative fiscal effects.

Technical advice for

Dispute Resolution Directive?

2.1.1. DTA and understanding procedure

Double Taxation Agreement (DTA) is intended to avoid or eliminate double taxation of the same income of the same taxpayer for the same period with similar taxes. Nevertheless, DBA cannot always avoid double taxation. For dispute-prone areas often have a divergent interpretation or application of agreements between the contracting states and the concrete distribution of profits as main problem areas. In the distribution of profits, transfer prices or the definitions of what a parent company or a permanent establishment is play a role.

Mechanisms are therefore needed to settle such disputes between States Parties. In addition, taxpayers have a right to the protection of their rights. Therefore, an understanding procedure has been inserted in Article 25 OECD-MA 2017 for this purpose. The procedure set out in Article 25(1), (2) OECD-MA 2017 shall be conducted at the request of the taxable person in order to avoid double taxation on a case-by-case basis. Here, however, the parties to the proceedings are only the authorities of the Contracting States. If the agreement procedure does not lead to the desired success, Article 25(5) OECD-MA 2017 provides for arbitration. In addition, Article 25(3) OECD-MA 2017 also provides for a consultation procedure in the event of doubts over interpretation or application, without any specific case-by-case reference.

In addition, on the basis of Article 293 EC, which has since been repealed, the Member States have concluded an arbitration agreement (EU Convention) in the area of transfer price corrections. It is important to point out that the EU Convention is not EU law but a multilateral international treaty. Consequently, there is no priority for application within the EU and no competence of the ECJ. The taxable person was granted a partial legal right to avoid double taxation.

However, in the previous dispute settlement procedures there is no effective way to avoid double taxation. Because long process times and the limited scope of application stand in the way of this. In addition, the reform of international tax law, for example with the BEPS project and Pillar I and II, threatens even more conflicts in the future.

2.1.2. Introduction of the Dispute Settlement Directive

The EU now envisages the EU Dispute Resolution Directive (SBRL) as a solution. This procedure is intended to provide for an effective and efficient settlement of tax disputes. The Directive was implemented in Germany by the EU Double Taxation Convention Dispute Resolution Act.

The Dispute Settlement Directive concerns procedures between Member States under Article 1 SBRL. The procedure shall involve the relevant competent authority referred to in Article 2(1)(a) SBRL. In Germany, the BZSt assumes this role.

In addition, the procedure is initiated by a complaint of a data subject pursuant to Article 3(1) SBRL. According to Article 2(1)(d) SBRL, this means any person who is resident for tax purposes in a Member State and whose taxation is directly affected by a dispute. If this is the case, the personal scope, i.e. the personal requirements, for the procedure is fulfilled.

2.2.2. Substantive scope of the Dispute Settlement Directive

The SBRL concerns disputes arising from the interpretation and application of agreements and conventions which provide for the elimination of double taxation of income and partly also of assets. This is therefore particularly aimed at DBA.

However, there are also exceptions. In criminal tax proceedings under Article 16(6) SBRL or in cases without

Double taxation, see Article 16(7) SBRL, access to the procedure may be restricted. Furthermore, the dispute settlement directive gives rise to new competition at the level of these procedures. The procedure under the SBRL comes in addition to the already existing agreements and arbitration procedures under the DTA and EU-SchÜ. However, one particularly important point must be considered here, since such processes could always take a very long time. Submitting a complaint pursuant to Article 3 of the SBRL immediately ends any other ongoing understanding or arbitration proceedings pursuant to Article 16(5) of the SBRL.

2.3.1. Stage 1 of the Dispute Settlement Directive: Complaints and Authorisation Procedures

In accordance with Article 3(1), the complaint shall be submitted to the competent authorities of the Member States concerned at the same time and with the same content no later than three years after the action resulting in or resulting in a dispute has become known. Then the authorities are obliged to decide within six months on the admission of the complaint to the mutual agreement procedure or to remedy unilaterally and thus solve the problem of the taxable person. However, unless a decision on an approval can be made, this is done automatically after six months.

If both authorities refuse the authorisation, then the affected person still remains the national remedy as a solution. If only one authority refuses admission, the person concerned may apply for arbitration in which admission is decided.

2.3.2. Stage 2 of the SBRL: Understanding procedure

If the agreement procedure has now been reached, the problem must be solved within two years by the authorities in accordance with Article 4(1) SBRL. It is important here that there is no last instance for this, but only the authorities are involved in the procedure. In this procedure, the authorities involved now agree directly at best and can thus directly remedy the situation, but the person concerned must agree to the decision.

If no agreement is reached, the taxpayer can initiate arbitration within 50 days.

2.3.3. Level 3 of the Dispute Settlement Directive: Arbitration

An advisory committee must be set up within 120 days. The latter must then formulate an opinion within six months. The authorities can then agree on a solution within a further six months by making a final statement. The authorities can also find a different solution, but if they do not, they must comply with the opinion of the advisory committee. Thus, the entire process can take up to four years until legal certainty exists.

The Dispute Settlement Directive appears to be an improvement on previous procedures, as there are fixed deadlines and prescribed procedural lengths for each step. Thus, the affected person knows exactly how long it takes for legal certainty to exist for them. However, it should be noted that in the case of a long-running other procedure, it is better to wait for its result, instead of restarting a process lasting many years.