Legislating the directive on tax dispute resolution mechanisms in the European Union
Published 6 July 2018
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Who is likely to be affected
This measure introduces legislation which provides statutory powers to implement the directive on tax dispute resolution mechanisms in the EU (the ‘Directive’). It will have no direct impact on taxpayers or business without further detailed implementing legislation.
General description of the measure
The EU convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (the ‘Arbitration Convention’) established a procedure to resolve disputes where double taxation occurs between enterprises of different member states as a result of an upward adjustment of profits of an enterprise of one member state.
While most bilateral tax treaties included a provision for a corresponding downward adjustment of profits of the associated enterprise concerned, they did not generally impose a binding obligation on the Contracting States to eliminate the double taxation.
The Arbitration Convention provided for the elimination of double taxation by agreement between the states including, if necessary, by reference to the opinion of an independent advisory body.
Following a review, it was concluded that the mechanisms currently provided for in bilateral tax treaties and in the Arbitration Convention might not achieve the effective resolution of double taxation disputes in all cases in a timely manner.
Consequently the Directive was adopted, to build on existing systems in the EU, including the Arbitration Convention.
This measure introduces the primary legislation needed to allow implementation of the Directive in the UK.
Policy objective
Double taxation can create serious obstacles for businesses operating across borders by creating excessive tax burdens leading to inefficiencies and an economic disincentive to trade. A tax dispute resolution system can help to alleviate the issue of double taxation.
The aim of the Directive is to introduce an effective and efficient framework for the resolution of tax disputes which ensures legal certainty and a business-friendly environment for investments.
This measure will allow implementation of the Directive.
On 23 June 2016, the EU referendum took place and the people of the UK voted to leave the EU. Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force.
During this period the government will continue to negotiate, implement and apply EU legislation. The outcome of these negotiations will determine what arrangements apply in relation to EU legislation in future once the UK has left the EU.
Background to the measure
The European Council issued Council Directive (EU) 2017/1852 on 10 October 2017 on tax dispute resolution mechanisms in the European Union. Article 22 of the Directive requires member states to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive by 30 June 2019 at the latest.
Draft legislation was published for consultation on 6 July 2018.
Detailed proposal
Operative date
The measure will have effect on the date of Royal Assent to Finance Bill 2018-19.
Current law
The enabling powers for HMRC to operate the Arbitration Convention are contained in sections 126 to 128 Taxation (International and Other Provisions) Act 2010 (TIOPA).
The detailed text of the Arbitration Convention can be found in the Official Journal of the European Communities and through the EU website.
Proposed revisions
As the Arbitration Convention is a standalone international convention, this measure will not replace it.
Instead, legislation will be introduced in Finance Bill 2018-19 to insert provisions to TIOPA in order to make provision for, and to allow the Treasury to make regulations for or in connection with the implementation of the Directive.
Summary of impacts
Additional details of the measure will be published in tax information and impact notes for the Regulations.
Exchequer impact (£m)
| 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
As a technical measure to introduce powers to implement a directive, it has no impact on taxpayers.
The measure does not impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that this measure will have adverse impacts on groups with protected characteristics.
Impact on business including civil society organisations
As a technical measure to introduce powers to implement a directive, it has no impact on businesses or civil society organisations.
Operational impact (£m) (HMRC or other)
No significant operational impacts have been identified.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The EU Directive requires evaluation by 30 June 2025, 5 years after the deadline for member states to bring the measure into force.
Further advice
If you have any questions about this change, contact Martin O’Rourke by:
- telephone: 03000 515 912
- email: martin.o’rourke@hmrc.gsi.gov.uk