On April 11th 2019, the Luxembourg government published a draft law transposing Directive 2017/1852 on dispute resolution mechanisms in the European Union (hereafter the “Directive”). This draft law aims to establish a more effective mechanism on resolving tax disputes between Luxembourg and other EU Member States, when such disputes arise from the interpretation and application of bilateral tax treaties or the Union Arbitration Convention, leading to double taxation. The Directive was developed as part of Action 14 of the OECD’s Base Erosion and Profit Shifting project, which seeks to make dispute resolution more effective in tax matters.
The mechanism requires an affected person to submit a complaint on a dispute simultaneously to each of the competent authorities of each of the Member States concerned, requesting the resolution thereof. Such a complaint shall be submitted within 3 years from the receipt of the first notification of the action resulting in the dispute. The competent authorities of each of the Member States concerned must then take a decision on the acceptance or rejection of the complaint within six months of the receipt thereof.
Once the competent authorities of the Member States concerned accept a complaint, they shall endeavour to resolve the question in dispute by mutual agreement within 2 years, starting from the last notification of a decision of one of the Member States on the acceptance of the complaint. If the competent authorities of the Member States reach an agreement on how to resolve the dispute, this decision will be binding on the authority and enforceable by the affected person. In case the competent authorities do not reach an agreement, they must inform the affected person of the reasons they failed to find an agreement.
If the complaint is not accepted or if no agreement is reached, the affected person still has the possibility to request the competent authorities to establish an advisory commission. This commission must be composed of one independent person of standing, one representative of each competent authority and one chair. The competent authorities may however also decide to establish an alternative advisory commission of which the composition can differ from the ordinary advisory commission. Any commission which is set up must deliver an opinion to the competent authorities within 6 months from the date of its establishment.
Following this opinion, the competent authorities must, within 6 months, reach a final decision on how to resolve the dispute. Although they may deviate from the opinion provided by the commission, the opinion will become binding if the competent authorities do not reach an agreement.
The Directive and, by extension, the draft law represent a positive step towards strengthening taxpayers' rights when facing double taxation, by providing a more efficient, effective and accessible resolution of disputes.