Taxation and customs union

Resolution of double taxation disputes in the European Union

The proposed Council Directive on Double Taxation Dispute Resolution Mechanisms (annex) in the EU lays down rules to resolve disputes between Member States on how to eliminate double taxation of income from business and the rights of taxpayers in this context.

It is widely accepted that the imposition of comparable taxes by two (or more) tax jurisdictions in respect of the same taxable income or capital has a negative impact on cross-border investment and leads to economic distortions and inefficiencies. Disputes between Member States on how to eliminate double taxation therefore need to be solved.

The proposed Directive provides for the elimination of double taxation by agreement between the Member States including, if necessary, by reference to the opinion of an independent advisory body. The Directive focusses on business and companies, the main stakeholders affected by double taxation situations. It builds on the existing Union Arbitration Convention Transfer pricing and the Arbitration Convention, which already provides for a mandatory binding arbitration mechanism, but broadens the scope to areas which are not currently covered and adds targeted features to address the main shortcomings identified, such as enhancing enforceability and effectiveness of this mechanism.

The proposed Directive thus aims at increasing legal certainty and improving the conditions for cross-border activities in the Internal Market.


The origin of the Directive goes back to the Commission's 1976 proposal for a directive to eliminate double taxation in the case of transfers of profits between associated enterprises in different Member States (Official Journal C 301 of 21 December 1976).

After long negotiations in the Council, the Commission proposal was transformed from a Directive into an inter-governmental Convention which was signed on 23 July 1990 (Convention 90/436/EEC on the elimination of double taxation in connection with the adjustment of profits of associated enterprises).

Intensive monitoring of the Union Arbitration Convention since its entry into force  revealed that it works well in many cases but that there are also substantial shortcomings regarding access for taxpayers to those mechanisms, coverage, timeliness and conclusiveness. Moreover, the traditional methods of resolving disputes do no longer fully fit with the complexity and risks of the current global tax environment.

What are the key aspects of the proposed Directive?

The directive foresees the following mechanism (simplified):


The procedure set out in the proposed Directive introduces the following new elements:   

  • it is of a broad scope; it applies to all instances of double taxation of income from business.
  • it is effective; it provides for mandatory resolution of double taxation disputes, if necessary by way of arbitration within strict and enforceable timelines.
  • ensures fairness; it sets out when access to national courts should be granted for clarifying whether there is an obligation to eliminate double taxation and if so, provides the national court with a possibility to take action.   
  • it is flexible; it allows MS to reflect future trends (e.g. mediation, baseball arbitration) for solving their double taxation disputes provided the double taxation is eliminated within the timelines laid down in the directive.
  • it allows facilitation; it allows the EU Commission to assist MS in the proceedings.
  • it increases transparency; it sets out that at least abstracts of the decisions will be published


How does the proposed Directive improve the situation?





Obligation to eliminate double taxation for businesses in some cases, but not enforced

Explicit and enforceable requirement to eliminate double taxation for businesses in all cases

Often no recourse for taxpayers when mechanisms not applied properly

Recourse for taxpayers to national courts to unblock procedures

Timeframe for procedure not predictable

Clearly defined and enforceable timelines, with a maximum period of 15 months for the arbitration phase

Scope limited to transfer pricing and permanent establishment issues

Scope extended to all cross-border issues in the context of business profits

No transparency requirements

Obligations for notification of taxpayers and publication of arbitration decision


For further information