The mutual agreement procedure and arbitration of double taxation disputes
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Ilias Bantekas, Brunel University School of LawProfessor of International Law, Brunel University School of Law.
McDaniel, P., “The Pursuit of National Tax Policies in a Globalised Environment: Principal Paper: Trade and Taxation”, in Brooklyn Journal of International Law, 26, 2001, p. 1621; Warren, A., “Income Tax Discrimination against International Commerce”, in Tax Law Review, 54, 2001, p. 131. 2 McLure, C., “Globalisation, Tax Rules and National Sovereignty”, in Bulletin for International Fiscal Documentation, 55, 2001, p. 328.
See, infra note 33, 1990 EU Arbitration Convention and Protocols. 4 1971 Andean Double Taxation Treaty (Bolivia, Colombia, Ecuador, Chile, Peru); 1994 Caribbean Community Double Taxation Agreement; 1988 OECD-Council of Europe Convention on Mutual Assistance in Tax Matters; 1983 Nordic Double Taxation Convention. 5 See Ecuador v Occidental Exploration & Production Co. (OEPC),  EWHC 345 (Comm).
See Karrer v USA, 152 F. Supp 66 (1957); Bank of American v USA, 680 F 2d 142 (1982); Boulez v Commissioner, 83 TC 584 (1984). 7 Diggs v Shultz, 470 F 2d 461 (DC Cir. 1972), cert. denied, 411 U.S. 931 (1973). 8 Art II.1 and V (2)(a) of the 1958 New York Convention, infra note 67. See Scherk v Alberto-Culver, 417 U.S. 506 (1974) and Mitsubishi Motors Corp v Soler Chrysler Plymouth Inc, 473 US 614, where the contemporary position in developing countries is that non-arbitrability is the exception and the parties may even submit to arbitration disputes relating to anti-trust violations, but can only do so with respect to the contractual elements of such violations. 9 Or by means of written objections directed to the relevant tax authorities. See OECD Commentary on Article 25, para. 6, p. 300. 10 Avery-Jones, J. et al, “The Legal Nature of the Mutual Agreement Procedure under the OECD Model Convention-I”, in British Tax Review, 22, 1979, p. 333; Avery-Jones, J. et al, “The Legal Nature of the Mutual Agreement Procedure under the OECD Model Convention-II”, in British Tax Review, 23, , 1980, p. 13. 11 See Brownlie, I., Principles of Public International Law, Oxford, Oxford University Press, 2003, pp. 391-392.
OECD Commentary, supra note 9, paras. 42-43, p. 309. There is no requirement, however, of disclosure to the taxpayer, which confirms the lack of effective locus standi of the taxpayer in the procedure. 13 The OECD Commentary notes that on account of para. 4 of Art. 25, the competent authorities may communicate with each other directly without the need to establish in each case diplomatic channels. This will be achieved through “joint commissions” through an oral exchange of opinions. Id, para. 4, p. 300. 14 Brownlie, supra note 11, pp. 472-481; Amerasinghe, C., Local Remedies in International Law, Cambridge, Grotius Publications, 1990. 15 In actual fact, the taxpayer need not exhaust the domestic remedies of either State. See OECD Commentary, supra note 9, para. 20, p. 304. 16 Id, paras. 8-9, 11, pp. 301-302. Art 25 enables the competent authorities to resolve transfer-pricing disputes not only with respect to juridical double taxation, but also economic double taxation, particularly those resulting from the inclusion of profits of associated enterprises under Art 9(1) of the Model Tax Convention.
OECD Commentary, id, para. 12, p. 302. The Commentary also explains that such actions encom - pass all acts or decisions, whether or a legislative or regulatory nature, and whether of a general or individual application, having as their direct and necessary consequence the charging of tax against the complainant contrary to the provisions of the Convention. 18 Weston, B., “Constructive Takings under International Law: A Modest Foray into the Problem of Creeping Expropriation”, Virginia Journal of International Law, 16, 1975, p. 103; see also, Middle East Cement Shipping and Handling Co SA v Egypt, 7 ICSID Reports, p. 173. 19 The general principle is that the three-year time limit as the date of the first notification should be interpreted in “the way most favourable to the taxpayer”. OECD Commentary, supra note 9, para. 18, p. 304.
Finanzamt Koln-Altstadt v Schumacker, Case C-279/93,  ECR I-225, point 21; G H E J Wielockx v Inspecteur der Directen Belastinge, Case C-80/94,  ECR I-2493, point 16. 29 See F W L de Groot v Staatssecretaris van Financien, Case C-385/00,  ECR I-11819, points 84,94,99 et seq; Oce Van den Grinten NV v Inland Revenue Commissioner, Case C-58/01,  ECR I-9809, point 54; Metallgesellschaft Ltd and Others, Hoechst AG and Hoechst (UK) Ltd v Commissioners of Inland Revenue and HM Attorney-General,  ECR I-1727, point 71 et seq . 30 Mr and Mrs Robert Gilly v Directeur des Services Fiscaux du Bas-Rhin, Case C-336,  ECR I-2793, point 24; Compagnie de Saint-Gobain, Zweigniederlassung Deutschland v Finanzamt Aachen-Innenstadt, Case C-307/97,  ECR I-6161, point 56.
EC Commission, EC Law and Tax Treaties, TAXUD E1/FR, Doc (05) 2306 (9 June 2005), p. 8. 32 See Art 30(4) of the 1969 Vienna Convention on the Law of Treaties. 33 90/436/EEC, OJ L 225 (20 Aug. 1990). 34 The Arbitration Convention is based on Art. 293 of the EC Treaty. Its inter governmental form under this provision means that the ECJ does not possess jurisdiction to interpret or enforce it. Neither can the EC Commission initiate any action under Art. 226 EC against a member State for failure to comply. See Ben Terra, Peter Wattel, European Tax Law, Kluwer, The Hague, 2001, p. 407. 35 Convention of 21 December 1995 on the Accession of Austria, Finland and Sweden to the EU Arbitration Convention, OJ C 26 (31 January 1996); Convention on the Accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia to the EU Arbitration Convention, OJ C 160/1 (30 June 2005). 36 Protocol amending the Convention of 23 July 1990 on the Elimination of Double Taxation in connection with the Adjustment of Profits of Associated Enterprises, OJ C 202/1 (16 July 1999). 37 Legal form is not important and the Convention is applicable to individuals, as long as the particular entity is an enterprise: Hinnekens, L., “The European Tax Arbitration Convention and its Legal Framework II”, in British Tax Review 272, 39, 1996, p. 277. 38 Proposal for a Council Directive on the Elimination of Double Taxation in Connection with the Adjustment of Transfer of Profits Between Associated Enterprises (Arbitration Procedure), COM/76/61FINAL, OJ C 301/4 (21 December 1976). 39 Luc de Hert, A New Impetus for the Arbitration Convention? (2005) 2 Intl Transfer Pricing Journal
Art. 7(2), UNCITRAL Model Arbitration Law; Art II.2, 1958 New York Convention. See Redfern, A.M et al, Law and Practice of International Commercial Arbitration, London, Sweet and Maxwell, 2004, pp. 159-163.
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