Institut für Österreichisches und Internationales Steuerrecht The EU Arbitration Convention - Best Practice or Lessons to be Learned? Claus Staringer 19 January 2015

Institut für Österreichisches und Internationales Steuerrecht The EU Arbitration Convention  20 years track record of tax arbitration in the EU  AC signed in 1990  in force since 1995  now for all EU Member States (except Croatia)  Structure of AC: 2 Phases  MAP phase: a conventional MAP  Arbitration phase: compulsory escalation to arbitration if MAP is unsuccessful  Ambiguous numbers  by end of 2012, 848 cases were pending under the AC (with a steep increase in recent years)  but: very few cases actually decided by arbitration (reportedly 4!)

Institut für Österreichisches und Internationales Steuerrecht Effectiveness of AC  How the AC has been seen by commentators  ¨legal fossil¨,¨fig leaf¨,¨lost its luster¨,¨slow and lonesome death of AC¨,¨needs to be revitalized¨  but also: ¨a marvel amongst tax treaties¨  Hypothesis  AC is a model example for the preventive effect that the mere existence of arbitration in tax matters could have  it is the absence of arbitration cases under the AC that witnesses its effectiveness  Counter-Hypothesis  AC is so unattractive to taxpayers that they do not rely on it

Institut für Österreichisches und Internationales Steuerrecht Limited Scope of AC  AC only covers double taxation arising from transfer pricing disputes  on issues of arm‘s length principle  in transactions either between group companies or between headquarters and PE  but AC does not cover disputes on other tax treaty issues (e.g.whether a PE exists)  what is a transfer pricing dispute covered by the AC?  conflict on the nature of a transaction? thin cap financing? adjustments under anti-abuse rules?  no appeal against exclusion from AC  even in transfer pricing cases, no obligation of MS to apply AC in cases of ¨serious penalties¨

Institut für Österreichisches und Internationales Steuerrecht Time Schedule under AC  key advantage: there is a mandatory time schedule  although difficult to enforce  sometimes agreement on longer deadlines desirable  MAP must be initiated within 3 years  MAP must be concluded successfully within 2 years  after taxpayer has provided complete documentation  after no other legal remedy is available (no parallel disputes)  key issue: some MS require taxpayers to waive court appeals at all  if not, Advisory Commission to be set up by MS (within 6 months)  once set up, Advisory Commission to decide within 6 months  result to be implemented by MS within 6 months

Institut für Österreichisches und Internationales Steuerrecht Advisory Commission  Ad Hoc Composition  Chair (qualified for highest judicial office or of recognized competence) to be elected by other members  2+2 (or 1+1) from MS‘ competent authorities  the same number of ¨ïndependent persons of standing¨  Independent persons of standing and chairs are taken from an all-EU list of nominees  each MS has permanently nominated 5 such persons  idea: to ensure highest expertise and integrity  no members appointed by taxpayers  Advisory Commission renders an opinion  not necessarily published (each MS and taxpayer may object)  not binding (!)  MS are free to agree (within 6 months) on an equivalent solution that eliminates double taxation, otherwise they have to follow the opinion

Institut für Österreichisches und Internationales Steuerrecht Role of Taxpayers  Only limited taxpayer involvement  AC arbitration is essentially an inter-government proceeding (¨escalation of MAP¨)  taxpayer is not a party but the object of arbitration  Process is directed by MS  MS take the initiative to establish Advisory Commission (i.e. write the request)  MS provide the Advisory Commission with the relevant documentation and information used during the MAP  taxpayer may submit additional information and may request to appear before Advisory Committee (but no mandatory court-style hearing)  Taxpayers are well-advised to ally with one MS  i.e. with the MS facing the risk of corresponding adjustment as the ¨¨loser state¨

Institut für Österreichisches und Internationales Steuerrecht INSTITUT FÜR ÖSTERREICHISCHES UND INTERNATIONALES STEUERRECHT Welthandelsplatz 1, Gebäude D3, 2. Stock, 1020 Wien, Österreich UNIV.PROF. DR. Claus Staringer T F