Germany Agrees With UK And Switzerland On Arbitration Procedures To Resolve Double Taxation

Author:Dr. Axel Bödefeld, Gunnar Knorr, Nina Kuntschik and Wolfram Vogel
Profession:Oppenhoff & Partner Rechtsanwälte

Germany agrees with UK and Switzerland on Arbitration Procedures to resolve Double taxation

Due to an increased number of long-lasting Mutual Agreement Procedures not solved within an appropriate period of time yet, the need for a (mandatory and terminating) arbitration procedure in international double taxation cases becomes more and more obvious and relevant. The German Double Tax Treaties with the US, Austria, Sweden, Canada and France already provide for (mandatory or voluntary) Arbitration procedures with regard to all kinds of Double Taxation not solved in time during a Mutual Agreement Procedure. Beside, the European Arbitration Convention stipulates a mandatory arbitration with regard to a Double taxation arising from a transfer pricing correction. More recently, the German tax administration has agreed on two further Double Tax Treaties with a general Arbitration clause.

Double Tax Treaty with UK

The new Double Tax Treaty (DTT) agreed between Germany and UK on March 30, 2010 became effective as of December 30, 2010. Amongst other changes, the revised Treaty and the newly introduced Article 26 Para. 5 respectively provide for a mandatory arbitration procedure if a possible double taxation cannot be resolved within (in principle) a 2 years-period beginning with the initiation of the respective Mutual Agreement Procedure. Article 26 Para. 5 DTT itself does not provide for specific procedural rules. Instead, the further details shall be specified by Germany's and UK's competent authorities. On October 10, 2011, Germany's Ministry of Finance published a respective Mutual Agreement concluded between the competent authorities on September 20, 2011. This Mutual Agreement provides for detailed rules and procedures regarding the arbitration process and shall apply to all pending Mutual Agreement Procedures. In short, it amongst others addresses the following topics:

Application and Initiation of the Arbitration Process Determination of the questions to be resolved (so-called "Terms of Reference") Appointment of the Arbitrators Legal principles for the Arbitrator's decision Possibility of a shortened "streamlined" Arbitration process Organisational issues (location of panel meetings, administrative personal and support, costs) The Mutual Agreement covers a number of practical and procedural issues we experienced in a former arbitration procedure based on the European Arbitration Convention and which had not been addressed so far...

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