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Malta Proposes Stricter Rules for Arbitrators of EU Tax Disputes


Added on 05/04/2017

Malta, in its role as rotating president of the European Union, is proposing changes to the pending EU Double Taxation Dispute Resolution Mechanisms Directive that would require arbitrators of tax disputes to be certified judges and eliminate references to the OECD multilateral instrument and the OECD Model Tax Convention, reports Bloomberg.

The Maltese presidency also has a new list of definitions, including for permanent establishments, in response to calls for the expansion of the scope of the directive to cover more than just business taxation and disputes involving countries with bilateral tax treaties.

Proposal for Judges

Some EU countries have raised concerns about the independence of “persons of standing” that will make double taxation dispute decisions in panels such as an advisory commission or alternative dispute resolution mechanism. In response, Malta proposed that only certified judges be allowed to serve.

“The Maltese presidency considers that there is merit in the suggestion made by some member states that the independent persons of standing should be judges in order that independence is truly maintained,” according to confidential documents drawn up by the Maltese presidency and seen by Bloomberg BNA.

Malta also proposed that the judges be from any EU member state and not necessarily from the country where an advisory commission or alternative dispute resolution commission is formed.

Denmark led the move for a clarification about arbitrators needing to be qualified judges, insisting that the European Commission proposal was insufficient.

“It should be a requirement that these persons are employed as full-time judges in a member state,” said a Danish submission to the Council of Ministers, a copy of which was seen by Bloomberg BNA. “This ensures sufficient independence—not only from the competent authorities involved and any specific taxpayers in the case that is to be assessed but also for business interests as well.”

OECD References

The same Danish paper also recognized that some EU countries are opposed to using some of the double taxation solutions developed by the Organization for Economic Cooperation and Development and that they are reluctant to agree to mandatory binding arbitration under the multilateral instrument developed by the OECD.

As a result of the concerns about OECD approaches, the Maltese presidency called for references to the OECD Model Tax Convention to be removed from Article 13 in the proposal that deals with opinions of either the advisory commission or alternative dispute resolution commission set up to resolve a tax dispute.

Despite the removal of the references to the OECD, a European Commission official, speaking on the condition of anonymity to Bloomberg BNA, insisted the deletion didn’t weaken the proposal. “The reference to the OECD Model Tax Convention in Article 13 of the directive is ancillary to one key objective, which is to have effective dispute resolution mechanisms based on an obligation of result in place including in situations where no double tax treaties are in force between member states.”

The same official said the “removal would not weaken the proposal” provided EU member countries “agree on the modus operandi to solve double taxation disputes.”

OECD Concurs

Pascal Saint-Amans, the director for the OECD Center for Tax Policy and Administration, concurred that removing references to the OECD Model Tax Convention or the multilateral instrument isn’t a concern.

“The important thing is that there are different mechanisms allowed under the proposal and solutions can be reached quickly,” Saint-Amans told Bloomberg BNA March 30.“What would be bad is if they restricted the proposal to current mechanisms such as the EU Arbitration Convention. But that has not happened.”

The European Commission proposed the Double Taxation Dispute Resolution Directive in October of 2016. The proposal details multiple ways to resolve double-tax disputes that go beyond the EU Arbitration Convention, which is limited to transfer pricing issues. The pending proposal calls for mandatory binding arbitration that is applied to decisions made by either the advisory commission or the alternative dispute resolution mechanism.

EU countries are divided over the scope of the directive as well as the competence of judges. The Maltese presidency has proposed that the directive cover all double-tax disputes and not be limited to business taxation or to disputes between EU countries that have bilateral tax treaties. As a result, Malta has outlined new definitions for businesses, including permanent establishments, that would qualify for dispute resolution.

Scope Dispute

However some countries are resisting expansion of the proposal to cover disputes beyond those involving countries with bilateral treaties.

Negotiations on the Double Taxation Dispute Mechanisms Directive in the Council of Ministers will continue in the coming months and Malta hopes to reach an agreement by June 30, the end of its presidency.

The European Commission estimates that there are more than 200 outstanding double-tax disputes in the EU involving sums in excess of $1 billion.