The EU Double Taxation Convention Dispute Settlement Act (EU-DBA-SBG) is a national legal basis with which one can apply an agreement procedure in the case of double taxation in another EU member state. In addition to the agreement procedure based on a double taxation agreement (DTA) and that based on the EU Arbitration Convention, this gives a third option to prevent double taxation. For this purpose, a dispute settlement complaint according to EU-DBA-SBG is submitted to the financial authorities of the EU states concerned. They can then agree on the elimination of double taxation within a maximum of three years. Failing this, the taxpayer may request arbitration within 50 days of the notification of the failed settlement. The committee to be convened then decides how the tax authorities can eliminate double taxation. If there is still no solution from the authorities, the committee’s proposal will apply after a certain period. This creates increased legal certainty for EU citizens.

The EU Double Taxation Convention Dispute Settlement Act (EU-DBA-SBG) is a law that complies with Council Directive (EU) 2017/1852 of 10. October 2017 on procedures for settling tax disputes in the European Union (EU Dispute Resolution Directive) transposed into national law. In this way, Germany is also introducing the necessary regulations with which taxpayers in this country are given the opportunity to remedy double taxation in connection with another EU member state. As a result, taxpayers resident in Germany who are affected by double taxation despite existing double taxation agreements (DTAs) will also have the opportunity to request the dissolution of double taxation from the tax authorities involved.

Of course, the EU-DBA-SBG itself is the primary legal basis for mutual understanding procedures under this law. The EU-DBA-SBG is largely based on the aforementioned EU Dispute Resolution Directive. In addition, there is also a BMF letter, which provides information on further details about all types of communication procedures. Even if only indirectly, the DTA between the EU member states is also important. After all, this is the real formal prerequisite for avoiding double taxation between states.

The EU-DTA-SBG thus offers an alternative to communication procedures, which are also part of the regulations of a DTA. And since the vast majority of the DTAs entered into by Germany are based on the OECD model agreement, this also applies practically to all DTAs in connection with other EU member states.

As with the other mutual agreement procedures, a proven double taxation despite the existing contrary regulation by a DTA is the prerequisite for an application for an agreement procedure. However, the request for a reference to the EU-DBA-SBG is called a dispute settlement complaint. Of course, the taxpayer concerned who lodged the complaint is obliged to provide proof of double taxation contrary to the DTA. A double taxation can have already taken place and also potentially, but still realistically threaten.

In addition, however, compliance with certain conditions is also required in the application for dispute settlement (for example, the written form according to § 4 EU-DBA-SBG). However, it must also contain certain information. These are again detailed in § 5 EU-DBA-SBG.

3.1.2 Deadline for submitting a dispute settlement complaint

There is a period of three years after double taxation to file a dispute settlement complaint under the EU-DBA-SBG. The period shall begin either on the day of the notification of a double taxation notice. Or it starts on the day you receive information about a threat of double taxation that will occur in the future. In the latter case, the date of notification is also relevant.

3.1.3. Where and how to file the dispute settlement complaint?

As with all requests for an understanding procedure, a dispute settlement complaint that one wishes to file in Germany must also be addressed to the Federal Central Office for Taxation (BZSt). An applicant must send the dispute settlement complaint based on the EU-DBA-SBG simultaneously and with the same content to all financial authorities involved.

However, there are exceptions for natural persons and smaller companies. They may also send the dispute settlement complaint to only one of the financial authorities, namely the country in which the applicant is established. The conditions that smaller companies have to meet in order to be able to make use of this exemption are regulated in § 28 EU-DBA-SBG. They refer to a set of EU directives describing company sizes.

3.1.4. Exclusion of other mutual understanding procedures on the same subject

In addition, it must be noted that the dispute settlement complaint under the EU-DBA-SBG can only be accepted if either no other mutual understanding procedures are already running on the same matter, or if they are terminated in favour of the dispute settlement complaint under the EU-DBA-SBG. If a taxable person has already submitted an application for another mutual agreement procedure before the submission of a dispute settlement complaint, the tax authorities shall request the applicant to withdraw one of the applications. For this purpose, the tax office grants a reasonable period of time. However, if an applicant does not withdraw an application within this period, the Finance Authority shall decide on the termination of the parallel mutual understanding procedures. Finally, this constitutes an unnecessary multiple burden on the authorities for the same purpose. In doing so, it makes the decision in terms of the best possible advantage for the taxable person.

3.2.1. Decision on the acceptance of the dispute settlement complaint

Once the aforementioned steps have been taken, the actual agreement procedure is carried out in accordance with the specification of the EU-DBA-SBA. Germany provides that the BZSt informs the partner authority in other EU countries of the receipt of the dispute settlement complaint within a maximum of two months. In addition, the BZSt has six months to decide on the admission of the application.

If all the tax authorities involved determine that the formal and substantive requirements for the acceptance of the request for an understanding procedure have been met, the applicant will also receive a corresponding notification. Incidentally, the application is deemed to have been accepted by the BZSt even if the authority has not taken a decision on acceptance within the said time limit.

However, if an authority has rejected the application in at least one of the participating Member States, the applicant is initially left with only remedies and remedies at national level. However, if these are excluded, the applicant has another option. It can then request the convening of an advisory committee to decide on the admissibility of the request. However, if a final rejection of the application is made in one of the Member States on the basis of a court judgment, the application for the establishment of the Advisory Committee is also possible.

The details of the arbitration procedure by the Advisory Committee shall be governed by the same rules as those applicable to arbitration proceedings resulting from an overrun of time in the mutual understanding procedure (see Section 3.2.3.1.).

3.2.2. Negotiations on the dissolution of double taxation

The authorities concerned therefore have two years to eliminate double taxation. In the best case, the applicant will receive a positive notification of an agreement reached during this time. However, the financial authorities may also extend the deadline by a further year. They shall of course also inform the applicant thereof.

However, if the deadline for an agreement within the framework of the mutual understanding procedure under the EU-DTA-SBG expires without a solution being reached, the applicant will also receive immediate notification thereof. He now has 50 days to request the establishment of an advisory committee for arbitration. The same applies to the notification of the court judgment confirming the rejection of a dispute settlement complaint (see Section 3.2.1.). The application must be sent to all the authorities involved at the same time and at the same time.

3.2.3. The arbitration procedure in the sense of the EU-DBA-SBG

3.2.3.1. Composition and establishment of the Advisory Committee

The advisory committee for arbitration requested by the taxpayer shall consist of one representative of each of the tax authorities involved, two independent experts and one chairman. For this purpose, the authorities select one independent person each (but you can also agree on two each). The candidates for arbitration are selected from a list deposited with the EU Commission. Each EU Member State has the opportunity to put a certain number of independent persons on this list as experts.

In addition, the Advisory Committee must be set up within 120 days. If the BZSt fails to appoint an independent person within the time limit, the applicant can obtain a court decision on this. This is also similar when the default hits the foreign authority. However, the national court is responsible for this.

Also within this period, the representatives from the authorities and the independent persons elected must elect a chairman from the EU list of independent experts for the Advisory Committee. This should be a judge, but you can also agree on another expert.

3.2.3.2. Opinion of the Advisory Committee

Following the establishment of the Advisory Committee, a written opinion shall be prepared. Regularly six months are available. If such processing takes longer, the Advisory Committee may extend it for a further three months. Of course, the panel informs all parties involved.

In the course of the discussions of the arbitration committee, it may obtain documents and information from the authorities concerned. The Advisory Committee may also request documents and information from the taxable person concerned. It may also request his appearance before the committee.

But also vice versa, the applicant has the right to comment before the Advisory Committee on the disputed double taxation. You can also send a representative, who should logically be a tax consultant experienced in international tax law. Or submit further documents that could be relevant to the committee’s decision-making process. However, the participating financial authorities must agree to these measures (§ 23 paragraph 1 EU-DBA-SBG).

If the opinion is finally available, the authorities involved will discuss a solution to the dispute. There is also a deadline for this: it is again six months. If a solution other than that recommended in the opinion is found during this period, the authorities shall inform the taxable person accordingly. However, if no agreement is reached between the financial authorities within this period, they shall be bound by the recommendation of the Advisory Committee.

Anyone who has diligently counted the many deadlines comes to a maximum duration of a little more than five years. Nevertheless, according to the requirements of the EU-DTA-SBG, the agreement procedure represents a clear progress on the conditions prevailing in the agreement procedures on the basis of DTAs agreed with third countries.

Regarding the costs, it can be noted that the authorities bear their own share. However, if the taxable applicant also incurs costs under this mutual understanding procedure, he shall also bear them himself. He may incur costs such as tax advice for the assessment of double taxation. Since this is a critical condition for filing the dispute settlement complaint, in most cases, costs for sound tax advice should always be included. But even appearing before the consultative committee, which may meet, can be associated with costs. This is all the more true if you send a tax consultant as a representative.

If a company is affected, it can at least count these costs as operating expenses. In this way, the costs are then reimbursed at least indirectly. However, if such costs meet a natural person as such, then you should think carefully whether the effort is really worthwhile. After all, if the costs end up being higher than the tax reimbursement by the withdrawal of double taxation, then they have been granted their rights, but then they have not benefited financially. In such a case, one should be very sure from the outset that filing a dispute settlement complaint is really worthwhile. In case of doubt, however, the requests relating to the understanding procedure can also be withdrawn at any time.

The agreement procedure under the EU-DTA-SBG represents a great advance in the area of the agreement procedure for the dissolution of double taxation. Even if the maximum duration of more than five years may hardly be perceived as progress, one can still speak of a significant reduction in processing time if the regular deadlines are observed.

The greater advantage of the agreement procedure under the EU-DBA-SBG, however, is that the arbitration procedure now provides a guarantee for the dissolution of a basically unjustified double taxation. Such a prospect is by no means present in agreements with third countries based solely on the bilateral DTAs. Thus, the EU-DBA-SBG creates legal certainty for taxpayers in the EU.