90/436/EEC: Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises - Final Act - Joint Declarations - Unilateral Declaracions - Main contents

Summary of Legislation
Legislative text

1. Summary of Legislation

Elimination of double taxation (arbitration)

SUMMARY OF:

Convention on elimination of double taxation — adjustment of profits of associated companies

WHAT IS THE AIM OF THE CONVENTION?

This intergovernmental convention, also known as the arbitration convention, introduces a procedure to eliminate double taxation in specific situations. For example, where branches of multinational companies (associated companies) which are based in different EU countries are taxed by more than one EU country as a result of an upward adjustment in its profits in another EU country.

KEY POINTS

When double taxation arises, the company affected can present its case to the tax authorities concerned; if those authorities cannot solve the problem satisfactorily, they seek to reach mutual agreement with the authorities of the EU country where the associated firm is taxed.

If the authorities in the 2 EU countries are unable to reach an agreement, they present the case to an advisory commission, which suggests a way of resolving the dispute.

Although the tax authorities may subsequently adopt, by mutual agreement, a solution which is different from the one suggested by the advisory commission, they are bound to adopt the commission’s advice if they cannot reach agreement. The commission consists of a chair, 2 representatives from each of the tax authorities concerned, and an even number of independent members.

The convention was signed on 23 July 1990 and came into force from 1 January 1995 until 31 December 1999 (a period of 5 years). On 25 May 1999, the Council adopted a protocol amending the convention; extending it for further periods of 5 years at a time.

Code of conduct

A code of conduct for the effective implementation of the convention was drawn up by the EU’s Joint Transfer Pricing Forum (JTPF) and adopted in 2006. The JTPF, set up in 2002, assists and advises the European Commission on transfer pricing* issues. A revised code of conduct was adopted in 2009. The code of conduct clarifies aspects including:

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the scope of the convention,
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the admissibility of a case,
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the mutual agreement procedures and
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the dispute resolution procedures.

Extension of the convention to new EU countries

Progressively, as more and more countries became members of the EU, the convention was extended to them by means of the following legal instruments:

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a convention in 1995 on the accession of Austria, Finland and Sweden to the convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises;
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a convention in 2005 on the accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia to the convention;
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an act concerning the conditions of accession of Bulgaria and Romania and the adjustments to the treaties on which the EU is founded;
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an act of accession of Croatia to the EU through which the country acceded to the convention and the protocol.Decision 2014/899/EU set the date of entry into force of the convention and protocol for Croatia and amended the text of the convention resulting from Croatia’s accession.

Council Directive (EU) 2017/1852

In October 2017, the Council adopted Directive (EU) 2017/1852 on tax dispute resolution mechanisms in the EU which builds on the arbitration convention. The directive’s scope is broader than the convention and will apply to all taxpayers subject to taxes on income and capital covered by bilateral tax treaties and the arbitration convention. Over time, the use of the arbitration convention may reduce, given the advantages of the directive requiring double taxation to be removed.

FROM WHEN DOES THE CONVENTION APPLY?

It applies from 1 January 1995.

BACKGROUND

For more information, see:

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Transfer pricing and the Arbitration Convention (European Commission).

KEY TERMS

Transfer pricing: a price, used for book-keeping purposes, which values transactions between affiliated companies falling under the same management at artificially high or low levels in order to make an unspecified income payment or a capital transfer between those companies.

MAIN DOCUMENT

Convention on the elimination of double taxation in connection with the adjustment of transfers of profits between associated enterprises (OJ L 225, 20.8.1990, pp. 10-24)

Successive amendments to the convention have been incorporated into the original document. This consolidated version is of documentary value only.

2. Legislative text

90/436/EEC: Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises - Final Act - Joint Declarations - Unilateral Declaracions

Contents

1.

Summary of Legislation

2.

Legislative text