DOUBLE TAXATION – Dispute resolution mechanism between EU member states

INTRODUCTION

The House of Representatives of the Republic of Cyprus has recently voted for the amendment of the Taxation of Income Law 118(I)/2002 (the ‘Law’) in order to be harmonized with the EU Directive 2017/1852 on tax dispute resolution mechanisms in the EU (the ‘Directive’).

This amendment provides a mechanism to resolve disputes between Member States when those disputes arise from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income or capital, in respect of the same taxable income or capital (hereafter ‘question in dipsute’), when this double taxation gives rise to either:

• an additional tax charge;
• an increase in tax liabilities; or
• the cancellation or reduction of losses that could be used to offset taxable profits

According to the Law, any affected person, is entitled to submit an objection on question in dispute before the Tax Commissioner and before any competent authority of each Member State.

It must be notes that in both the Law and the Directive, the affected person is described as any person, including individuals, that is a resident of a Member State for tax purposes, and whose taxation is directly affected by a question in dispute.

THE PROCEDURE

Based on the Law, the procedure of the mechanism is as follows:

1. The objection shall be submitted, either in English or in Greek, within 3 years from the receipt of the first notification of the action resulting in, or that will result in, the question in dispute, regardless of whether the affected person has recourse to the remedies available under the national law of any of the Member States concerned;
2. The affected person shall simultaneously submit the objection, with the same information, to each competent authority, and shall indicate in the objection which other Member States are concerned.
3. The Tax Commissioner acknowledge receipt and to this end inform both the affected person and the relevant competed authorities within 2 months from the receipt of the objection.
4. The Tax Commissioner shall take a decision on the acceptance or rejection of the objection within 6 months of the receipt thereof or within 6 months of the receipt of the particular information may requested, whichever is later.
5. Within the period of 6 months from the receipt of the objection, or within 6 months of the receipt of the information referred to in paragraph 4 above, whichever is later, the Tax Commissioner may decide to resolve the question in dispute on a unilateral basis, without involving the other competent authorities of the Member States concerned.
6. In case that the Tax Commissioner will not meet the subject deadline (as mentioned in paragraphs 4 and 5 above), in relation to the acceptance or rejection of the objection, then the objection shall be considered as accepted by the Tax Commissioner.

WHEN IS THIS AMENDMENT EFFECTIVE

The provisions of this amendment shall be deemed to have entered into force on 1/7/2019 and shall apply with respect to any objection raised by 1/7/19 and thereafter on a contentious matter relating to income or capital acquired in a tax year commencing on or after 1/1/2018.

The competent authorities of the Member States concerned may agree to apply the dispute resolution mechanism provided in this Law to objections filed before 1/7/2019 or in previous tax years.

Artemis Kyriakou (Associate – Tax Department), Costas Apokides (Associate Lawyer – Litigation Department)

DISCLAIMER

This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.