What does the new act on international cooperation in tax administration bring?

On 15 September 2020, Act No. 335/2020 Coll., on International Cooperation in the Resolution of Tax Disputes in the European Union, came into force. It is a new act, which implements Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (i.e. “DRM Directive”). Taxpayers can now use the directive in case of cross-border resolution of controversial issues pertaining to the interpretation and application of double taxation treaties (among member states of the EU).

The Act describes the procedure in a relatively detailed way (the process should be harmonised in all member states of the EU in line with the DRM Directive) and defines requirements for the harmonised process initiation. The new mechanism of the cross-border tax dispute resolution also includes a so-called advisory commission (an independent advisory commission formed on a one-time basis) or a tax arbitration institute, which is activated if the respective commission generally cannot reach an agreement within two years. According to the transitional provisions, the new mechanism cannot be applied to the taxation periods before 1 January 2018.

The taxable entity can thus decide which tool (process) will be used for tax dispute resolution among the member states of the EU. The existing tax dispute resolution mechanisms derive from bilateral tax agreements (especially double taxation treaties) and the so-called Transfer Pricing Arbitration Convention (Convention on the Elimination of Double Taxation in connection with the Adjustment of Profits of Associated Enterprises). These agreements include specific provisions on consensual dispute resolution (or the “MAP procedure” – mutual agreement procedure) which taxpayers could use until now and still may in the future if they choose so.

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