From an obligation of means to an obligation of results
Why is new legislation necessary?
Double taxation agreements do not contain provisions requiring signatory States to eliminate double taxation situations. To compensate for this shortfall, the EU Arbitration Convention was introduced on 23 July 1990 with the aim of obliging States to reach an agreement to eliminate double taxation, but only in the event of a transfer pricing adjustment or in the context of the allocation of profits to a permanent establishment. The text created a two-phase procedure: an amicable procedure followed by an arbitration phase in the event of failure of the first phase. Outside the scope of this arbitration convention, the amicable procedure therefore constitutes an obligation of means and not of results.
What innovations does the new directive bring?
The new legislation introduces a procedure in three successive phases and differs from the amicable procedure through the binding effect of its last phase. In addition, the arbitration mechanism was previously restricted to transfer pricing disputes or disputes arising from the allocation of profit to a permanent establishment. Through the new directive, the arbitration mechanism will be extended to other types of double taxation arising from the application of double taxation agreements, but also to disputes arising from a breach of an article of a double tax treaty.
Phase I: Complaint or objection phase
From notification of the act at the origin of the dispute, the taxpayer concerned has a period of 3 years to lodge a complaint with the competent Belgian authority and with the other Member States involved in the dispute. The claim must, by risk of inadmissibility, contain certain statements and supporting documents determined by law.
The competent authority then has 6 months to rule on the admissibility of the claim, which will be presumed to be accepted if no response is received within the above-mentioned period. The procedure then enters its second phase: amicable settlement.
Phase II: Amicable procedure
The States concerned are obliged to consult each other in order to find an amicable solution within a period of 2 years (a period that may be extended once for a period of one year at the most based on a justified request to the other Member States party to the dispute). In the event of agreement, the decision is notified to the taxpayer, who may accept or refuse it. Acceptance implies for the applicant the need to waive his/her/its other remedies and to put an end to those that he/she/it may have already introduced. In the event of disagreement, we enter the third phase: arbitration.
The Member States are responsible for setting up an advisory committee composed of a president and one or two independent persons for each of the States or an alternative dispute settlement committee (potentially permanent structure).
The advisory committee must then give its opinion to the competent authorities within a period of 6 months (which may be extended once for a period of 3 months). After this, the States can jointly decide to take a decision that deviates from the opinion, or follow the opinion, which then becomes binding. When the States decide to set up an alternative dispute settlement committee, they may decide to adhere to the opinion of this committee, which then constitutes a binding opinion.
Simplified administrative procedure for individuals and SMEs
The law provides for a simplified administrative procedure for individuals or SMEs using the above-mentioned procedure.
The transposition law will apply to a broader area than the EU Arbitration Convention as it is not limited to transfer pricing disputes or disputes arising from the allocation of profit to a permanent establishment.
Entry into force
The law should enter into force on 1 July 2019 and will apply to claims brought before the competent authorities after this date provided that they concern income attributable to a taxable period beginning on or after 1 January 2018.
Impact on the taxpayer
In the future, persons and entities affected by a tax dispute resulting in double taxation will be more easily able to assert their rights and avoid a disproportionate tax charge being imposed on them thanks to the binding nature of the arbitration phase. By strengthening legal certainty and the transparency of procedures, this new legislation contributes to improving the tax and economic environment and to promoting investments within the Union.
The transposition of the directive by all the Member States of the European Union also reinforces the standardisation of the legal framework in which companies operate and minimises the risks and uncertainties arising from procedural differences.
We can only welcome the fact that such a directive is being transposed into Belgian law as it guarantees, in more cases, the elimination of situations of double taxation and results in a procedure that will be more flexible and accessible to individuals and SMEs.
We might also hope that, bilaterally, Belgium is trying to set up permanent committees for the alternative dispute resolution with neighbouring countries (the Netherlands, Luxembourg, Germany and France); such permanent committees would undoubtedly make it possible to simplify and above all speed up the dispute resolution. Indeed, these neighbouring States are often the main cross-border destinations of our exporting SMEs.
Shoud you have any questions regarding this topic or would like to be assisted by one of our experts, please do not hesitate to contact the BDO Transfer Pricing team:
- Tine Slaedts, Partner, [email protected]
- Charlotte Broekaert, Senior Manager, [email protected]
- Kim Van Woensel, Manager, [email protected]
- Gaëlle Pirenne, Supervisor, gaë[email protected]
- Katrien Salomez, Supervisor, [email protected]
- An Gijsbregts, Supervisor, [email protected]