Dispute Resolution Prevention – Part Two

This article is the second of our Mutual Agreement Procedure (“MAP”) series and covers the effective use and benefits of arbitration available to taxpayers in international tax disputes.


Organisation for the Economic Co-operation and Development (“OECD”) members have a strong track record of resolving double taxation through MAP, with 78% of transfer pricing cases resulting in 100% of the double taxation being resolved in 2018. However, there are times that tax authorities cannot reach agreement on how to resolve all or some of the double taxation through MAP.

In this article, we explore the alternative mechanisms available to taxpayers where double taxation is not resolved through MAP, i.e. arbitration. Our next article will explore alternative dispute resolution mechanisms, with the focus on alternative dispute resolution (“ADR”).

International tax dispute resolution specialists 

Mazars UK has a team of dispute resolution specialists, both in international tax and transfer pricing, who have a good working relationship with the UK Competent Authority (“CA”), have years of experience in working MAP cases, and who believe that, in general, this would be the most effective route to take when looking to resolve double taxation, and that arbitration strengthens this route for taxpayers.


This article provides an overview of the arbitration convention under double tax treaties (“DTT”), the use of the EU Arbitration Convention (“EUAC”) by EU member states to resolve double tax issues in transfer pricing, and the effect of the OECD Multilateral Instrument (“MLI”) on existing DTT.

The benefits of arbitration

Whilst MAP is considered to be the most effective mechanism available to taxpayers in terms of resolving double taxation, the one weakness of MAP is that it only provides for tax authorities to use their “best endeavours” to reach agreement and does not generally impose a binding obligation to eliminate the double taxation.

Therefore, MAP negotiations could continue for extended lengths of time, or double taxation could go unresolved.

The key benefit of arbitration is that, in defined circumstances (as explained below), it obliges the tax authorities to submit the unresolved issues to an independent panel of experts, usually by a set deadline following the beginning of MAP.

In the vast majority of cases, the decision handed down by the arbitration panel is binding and therefore ensures MAP is completed in a timely manner, and that 100% of double taxation (or any other such dispute) would be resolved.

Part VI of the OECD MLI introduced binding arbitration into tax treaties where both jurisdictions have signed up to and agreed to apply it. It is anticipated that Part VI will be introduced into over 150 existing treaties, with may existing DTTs containing arbitration clauses already.

Arbitration procedures strengthen both the taxpayers’ and tax administrations’ ability to resolve double taxation.


There are two types of arbitration available to taxpayers, depending on their circumstances and the jurisdictions involved:

  • The EUAC, where both entities affected are resident in EU member states, and where the issue relates to transfer pricing; and
  • DTT arbitration, where the relevant clause is included in the MAP article, which can be applied to any issues being resolved through MAP.

EUAC (Convention 90 / 463 / EEC)

The EUAC establishes a procedure to resolve disputes where double taxation occurs between connected parties in different EU Member States by reference to the opinion of an independent advisory body. The Convention provides certainty to taxpayers that double taxation will not be suffered in the event of an EU tax authority action, as the decision of the body is binding.

Under the EUAC, the usual MAP process applies first, however, the EUAC specifies a time limit of two years for the authorities to agree a position. If agreement cannot be reached, the formation of an advisory panel can be requested. This gives further certainty to taxpayers in terms of providing a specific time limit for resolving disputes and ensures 100% of the double taxation will be resolved during the negotiations. 

As well as the EUAC itself, the EU released the EUAC Revised Code of Conduct (“EUAC CoC”) in 2009, which sets out further guidance to EU member states and taxpayers on how to apply the EUAC. The key part of the EUAC CoC for taxpayers to consider is that the two year time limit to resolve MAP before arbitration can be requested only begins when the minimum information is considered to have been received by both tax administrations. Therefore, it is key to seek this confirmation early in the MAP process to ensure that the two year time limit is applied from the date of the request being submitted.

Another consideration for taxpayers applying under the EUAC and domestic remedies is that the two year time limit is computed from the date on which the judgement from the final court of appeal was given, or from the date on which the domestic judicial process is stayed.

The downside of the EUAC is that it only applies to resolving double taxation in relation to transfer pricing, and does not cover wider disputes, such as profit attribution to a PE or residency disputes. However, it is expected that the EUAC will eventually be replaced by the EU Disputes Directive (Council Directive 2017 / 1852), which covers a wider range of issues, not just those related to double taxation arising from transfer pricing adjustments.

The new dispute resolution directive has applied since 01 July 2019 for any income or capital earned in a tax year starting on or after 01 January.

In reference to the EUAC and Britain’s departure from the EU (“Brexit”), it is expected that the EUAC will continue to apply to any valid requests submitted before the end of the transition period on 31 December 2020. After this date, it is not yet known whether the EUAC will continue to apply, therefore, it is recommended that taxpayers apply under both the EUAC and DTT MAP, where possible.

DTT Arbitration

Some of the existing and most recent UK DTTs already include arbitration clauses, whereby if MAP cannot be resolved within two years or, infrequently, three years, or where certain issues remain unresolved, a taxpayer can request the setting up of an arbitration panel. DTT arbitration allows for an independent panel to review the case and provide a ruling on resolving the issues at hand, and then for the tax authorities to apply such agreement.

In this sense, DTT arbitration operates in a similar way to the EUAC, however, the key benefit of DTT arbitration is that it applies to all cases bought under MAP, not just transfer pricing cases, and it can be used for disputes that arise with UK DTT partners outside of the EU.

The broad and well established DTT network of the UK means the majority of UK DTT do not currently include an arbitration clause. That said, the UK is a member of the OECD and signed up to Part VI of the OECD MLI, along with a number of her Treaty partners. Therefore, arbitration under the MAP clause is becoming available to resolve disputes in an increasing number of UK DTT.

This clause being included in UK DTT gives taxpayers additional certainty that disputes would not continue for longer than two years under MAP and that the dispute would be resolved in its entirety. This time period is an incentive for the CA to solve the case during the MAP years.

The OECD is hopeful that all member and non-member states will eventually sign up and abide by Part VI to create a level playing field for tax dispute resolution globally. In the meantime, the relevant DTT must be carefully read and understood prior to a MAP request being submitted to understand what rights a taxpayer has following MAP.

Some UK DTT partners would not allow DTT arbitration where the case has already been submitted under the EUAC. With the uncertainties around the EUAC applying to disputes submitted post-Brexit transition phase (i.e. after January 2021), under these exceptional circumstances it appears that the UK CA would accept a taxpayer applying under both the EUAC and DTT in order to guarantee access to arbitration under one of the mechanisms.

One last consideration in terms of DTT arbitration is that where a case has also been brought before an administrative tribunal or court, the time limit for requesting arbitration will be suspended until the court or tribunal issues its final decision, or until the matter has been stayed or withdrawn by the taxpayer.

Arbitration increases certainty for taxpayers. It improves the MAP process by ensuring that it is managed in a timely manner and it aims that all disputes are resolved in full. It also gives a taxpayer an additional avenue for resolving disputes following MAP. Given its complexities, advice should be sought from a dispute resolution specialist to ensure that the process is navigated efficiently and effectively.

The Mazars UK tax dispute and resolution team has extensive expertise and experience and is on hand and happy to help with any questions you may have, so feel free to phone or submit an enquiry.

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