The EU Arbitration Convention establishes a procedure to resolve disputes where double taxation occurs between enterprises of different Member States as a result of an upward adjustment of profits of an enterprise of one Member State. Whilst most bilateral double taxation treaties include a provision for a corresponding downward adjustment of profits of the associated enterprise concerned, they do not generally impose a binding obligation on the Contracting States to eliminate the double taxation.
The Convention provides for the elimination of double taxation by agreement between the contracting states including, if necessary, by reference to the opinion of an independent advisory body. The Convention thus improves the conditions for cross-border activities in the Internal Market.
For clarifications concerning some practical aspects of the Convention, see also the Revised Code of Conduct for the effective implementation of the Arbitration Convention.
The origin of the Arbitration Convention was 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) and the White Paper of 1985 on the completion of the Internal Market.
After long negotiations in the Council, the Commission proposal was transformed from a Directive into an inter-governmental Convention and it 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).
The Arbitration Convention was initially in force from 1 January 1995 until 31 December 1999 for a period of five years. Several months before the expiration of the first five-year application period of the Arbitration Convention, the Council adopted a Protocol to the Arbitration Convention that provides for an automatic extension of the Convention by periods of five years unless a Contracting State opposes. This Protocol of 25 May 1999 amends the Convention of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits of associated enterprises. This Protocol was, in spite of its timely signature, only ratified by all 15 Member States in 2004 and the Arbitration Convention re-entered into force , with retroactive effect from 1 January 2000, on 1 November 2004.
With the enlargement of the EU the Arbitration Convention was successively extended through the following legal instruments:
The Arbitration Convention applies in all EU Member States. Further information on the Arbitration Convention, including a list of independent persons of standing, eligible to become a Member of the advisory commission as referred to in Article 7 (1) of the Arbitration Convention is available on the Council website.
Information specific to a certain Member State with respect to the Arbitration Convention can be provided by the respective Competent Authorities.