Tax disputes in the EU: legislative decree transposing the European Directive

Prepared by Carlo Romano, Daniele Conti, Giulia Faustini and Flavia Guglielmi

Yesterday, the legislative decree no. 49/2020 (hereinafter also “decree”) implementing Directive (EU) 2017/1852 (hereinafter also “Directive”), entitled “tax dispute resolution mechanisms in the European Union” was published on the Italian Official Journal. More precisely, the aforementioned legislation governs tax disputes arising from the interpretation and application of conventions for the avoidance of double taxation.

What are the main changes regarding the resolution of tax disputes in the European Union?

Compared to the existing legal framework on the matter, the Directive has extended the field of application of mutual agreement procedure, providing for two significant innovations:

  1. unlike the double tax conventions entered into by Italy, the taxpayer may present a request to set up an Advisory Commission for arbitration where an agreement has not been reached between the competent authorities, ensuring certain timeframes in the interpretation and application of the same tax treaties;
  2. with respect to the European Arbitration Convention (no. 90/436/CEE), the extension of the scope of the procedure, that is no longer limited to transfer pricing and to the allocation of profits to permanent establishments, and therefore concerns – in principle – the cases covered by double tax conventions (despite particularly focusing on cases of international double taxation). Thus, this latest innovation allows the submission of complaints also to individuals and companies not belonging to multinational groups.

What are the essential elements of the new mechanisms to resolve tax disputes?

Pursuant to article 3 of the decree, a complaint may be filed with the competent authorities of each of the relevant Member States (Revenue Agency for Italy), seeking for the opening of a mutual agreement procedure resolution within three years following the notification of a tax measure.

In this context, a relevant innovation is the possibility to submit a complaint, on one hand, even if there are tax administrative procedures still pending and involving the final character of the assessed taxes (e.g. after the agreement on a tax audit settlement) and, on the other hand, without necessarily starting prior litigation at a national level.

Where necessary, the Revenue Agency is entitled to request for additional informations and, if that is the case, to unilaterally resolve the question in dispute (i.e., whithout involving the correspondent foreign competent

Authority). Otherwise, the competent authority of each of the Member States concerned shall take a decision on the acceptance or rejection of the complaint within six months of the receipt thereof. Among the reasons of the possible rejection, there could be the lack of the necessary information, the absence of a question in dispute or the existence of a final court decision or of a decision taken pursuant to an in-court or out-of-court settlement (“conciliazione”).

In case of acceptance of the complaint, the competent authorities of the relevant Member States and the Italian Revenue Agency shall endeavour to resolve the question in dispute within two years (which may be extended) following the last notification of a decision of one of the Member States on the acceptance of the complaint.

What is the Advisory Commission and how the «arbitration» works?

In case of rejection of the complaint, the complainant may appeal before the Tax Court (as already clarified by the Supreme Court with orders no. 12759 and no. 12760 of June, 15th, 2015). Moreover, starting a court litigation is deemed the only path that could be pursued where all the relevant competent authorities rejected the complaint.

Where, instead, the complaint submitted was rejected only by one or not all the involved competent authorities, the complainant shall make the request to start the arbitration. Similarly, this happens where the competent authorities of the relevant Member States accepted the complaint and started the mutual agreement procedure but failed to reach an agreement on how to resolve the question in dispute within the aforementioned two-year time limit.

The arbitration starts with the set up of an Advisory Commission (made up of a president, a representative for each competent authority and an independent person per relevant Member State) expressly requested by the complainant, who, at the same time, must waive pending or future appeals.

The Advisory Commission (whose set up must be requested within 50 days following the notice of rejection to access the mutual agreement procedure or on the failure to timely reach a mutual agreement) shall then be established within the following 120 days. The competent Authorities may set up an Alternative Dispute Resolution Commission in lieu of the aforementioned Advisory Commission.

Specific legal remedies are provided if the Advisory Commission is not timely set up (or independent persons are not appointed). The appointment of the Advisory Commission (or of the independent persons not designated on the Italian side) lies in Italy with Regional Tax Court of Lazio.

What happens once a mutual agreemeent is reached or after the conclusion of the arbitration?

Pursuant to article 19 of the decree, the Revenue Agency shall refund or relieve the undue amounts, where a different taxable income or tax amount results from the implementation of the mutual agreement or of the final arbitration decision. In case the tax authority claim is entirely cancelled, penalties shall be refunded, upon filing of a specific request.

Moreover, in order to let those agreements or final decisions be enforced, according to the decree, the statute of limitations for tax assessement is doubled (i.e., 10 or 14 years depending on whether a tax return was filed in Italy in the disputed fiscal year).

Which remedies are available for the taxpayer if the mutual agreement or the arbitration decision remains unfulfilled?

In case of failure to fulfill the mutual agreement or the arbitration decision by the Revenue Agency, the taxpayer may start the procedure leading to the motion for enforcement of tax judgments (art. 70 of the Legislative Decree no. 546/1992). However, the arbitration decision cannot be enforced in such way if the President of the Regional Tax Court of Lazio rules that one of the independent persons could not meet the necessary independence requirements at the time of the appointment or of the arbitration decision.

Let’s Talk

For a deeper discussion, please contact:

Carlo Romano

PwC TLS Avvocati e Commercialisti

Partner

Daniele Conti

PwC TLS Avvocati e Commercialisti

Manager