Belgian tax administration comments on the law implementing the EU Directive on tax dispute resolution mechanisms in the European Union

It is not certain that the mechanisms put in place have attracted sufficient attention from practitioners. The Belgian tax authorities just issued a welcome reminder in the form of a circular (2023/C/95), dated December 1, 2023 (the” Circular”), contains a useful commentary on the Law, provides examples and replaces the new procedure in the context of the existing dispute procedures already available to taxpayers.

The mechanisms and how to trigger them.

The Directive introduced two resolution mechanisms to solve complaints by taxpayers alleging taxation contrary to the provisions of a double tax treaty in the EU: the Mutual agreement procedure (“Procedure amiable/Procedure voor onderling overleg”) and the resolution by the Advisory Commission (“Arbitrage”).

The taxpayers wishing to use these new mechanisms must explicitly invoke the Law of 2 May 2019 when submitting a complaint against a given taxation. Said taxation will be "directly disputable" where the dispute between Belgium and another Member State arises from the interpretation and application of agreements and conventions for the avoidance of double taxation of income (and, where applicable, capital). Interestingly, the complaint may not only be drafted in one of the three official Belgium languages (Dutch, French, German) but also in English.

Deadlines and examples of computing them.

The deadline for filing the complaint is much longer than the domestic one (the ordinary “tax protest” - “Réclamation/Bezwaarschrift”) of one year) and, possibly, to deadlines included in the applicable double tax treaties for the mutual agreement procedure. It may indeed be lodged within three years of the date of receipt of the first notification concerning one or more acts which give rise or will give rise to a dispute. Without there necessarily being double taxation at the time of its introduction.

However, this deadline is shorter than the one, provided under Belgian domestic law, for seeking annulment of taxes creating a double taxation contrary to the provision of double tax treaties (the ex officio relief – “Dégrevement d’office/Ambsthalve ontheffing ” : five years as from the 1^st of January during which the disputed tax has been assessed). But this domestic remedy is restricted to issues of double taxation (in contrary to the scope of the Directive) and obviously, tackles Belgian tax only.

Thus, the Circular gives the example of a Belgian tax resident who works for a Belgian company, but exclusively on German soil. His compensation should be taxable in Germany. Yet, on 1 October 2019, the individual received a notice of rectification whereby the Belgian tax authorities proposed to tax his remuneration. However, on 13 November 2019, he receives the assessment notice taxing his remuneration in Belgium. On 6 January 2020, a first notification of the taxation of his remuneration in Germany is sent to him.

The Circular states that the taxpayer can file a complaint as soon as he receives the rectification notice sent to him on 1 October 2019 (even though no Belgian tax has yet been assessed) and until 9 January 2023 (3 years from receipt of the first notification of German taxation).

Another example involves the same Belgian tax resident taxpayer, this time working for a German company, but exclusively on Belgian soil. Although his compensation is taxable in Belgium, he receives a tax assessment from the German tax authorities on August 1, 2019. He files his Belgian tax return and claims exemption in Belgium for his German source compensation. However, the Belgian tax administration refuse this, send him a return amendment notice on October 1, 2020, and later an assessment notice (received on November 13, 2020). In this case a complaint may be lodged as soon as he receives the German tax assessment (as the latter may be contrary to the double tax convention) and, at the latest, until October 5, 2023 (3 years after receiving the rectification notice).

The Circular stresses that the complaint may be used even though the deadline for filing a “domestic” tax protest has expired or even when such a domestic tax protest has been filed, but was rejected, and the deadline for filing subsequent legal action has expired. Moreover, there are no objections against using the 2019 law mechanism even though other dispute procedures are pending (although specific rules are applicable in this scenario).

The mutual agreement mechanism

The authorities competent to receive and manage the complaint is the Belgian competent authority (only) if the taxpayer is an individual, or a company, not being a “large” company and not being member of a “large” group. Otherwise, the competent authorities of the other involved Member States must also receive the complaint, too.

The Belgian tax administration must issue a decision on the complaint within six months. If this time limit is exceeded without a decision being issued, the claim is deemed to have been accepted or, more precisely be held admissible.

As the case maybe, the Belgian tax administration may unilaterally solve the dispute by cancelling the assessed Belgian tax. This decision, according to the Circular, may not be disputed in court.

Otherwise, if the complaint is held admissible by all the competent authorities of the Member states concerned, the Mutual agreement procedure is triggered. The authorities then have a two-year deadline (as from the last decision of a competent authority to declare the complaint admissible) to reach an agreement (the deadline may be extended with an extra year). However, the deadline starts later if the taxpayer has also initiated (a) domestic procedure(s) against the taxation: in a nutshell, the clock does not start ticking until said procedure is closed or “suspended”.

If the mutual agreement procedure does produce an agreement from the competent authorities, the latter may be relied on by the taxpayer, but if he had filed parallel domestic appeal(s), he must first put an end to it (them).

If, before an agreement is reached, a final decision is issued by a jurisdiction on the dispute at hand, the mutual agreement procedure is aborted. Indeed, the competent authority must abide by this decision.

The Advisory Commission

In case the mutual agreement procedure does not produce an agreement, the taxpayer may request resolution by the Advisory Commission (“Arbitrage”). This is also available to him if the competent authorities reject his complaint. In the latter case, several scenarios are possible: if the rejection is the decision of all competent authorities concerned the taxpayer may challenge this rejection in court, insofar as it originates from the Belgium tax administration, in an accelerated procedure. If the court decides that the complaint should have been held admissible, this opens the way to resolution by the Advisory Commission at the request of said taxpayer. If the rejection decision was not taken by the unanimity of the competent authorities involved, legal action is not open, but the taxpayer may then seek resolution through the Advisory Commission. Finally, even if legal action is open against a unanimous rejection decision, the taxpayer may commit not to file legal action and request the Advisory Commission procedure. As a rule, the deadline for requesting the establishment of a commission is 50 days from the event allowing it.

The Commission cannot intervene either when a final decision has been handed down by a court on the dispute.

The Advisory Commission is composed of representatives of the competent authorities and independent people. Numerous, complex provisions regulate their appointment and the possibility of challenging them.

Once constituted, the Advisory Commission must issue its decision within 6 months. If the initial complaint of the taxpayer is held non admissible, the procedure ends (in that case the taxpayers must bear the costs of this procedure). If the complaint is declared admissible, a Mutual agreement procedure between the competent authorities must start, but only if one of the competent authorities does decide it (the two years deadline for reaching an agreement is applicable). If such a decision is not taken within 6 months, the Advisory Commission ex officio issues an “advice” on the way to solve the dispute, taking into consideration the relevant provisions, those of the double tax treaty and the domestic ones.

Does the advice so delivered bring the dispute to an end? Only insofar the competent authorities do not jointly agree to take a decision that departs from the opinion within six months. A unanimous decision by the competent authorities may therefore contradict the advice.

Here also, if a final decision has been handed down by a court on the dispute, the Advisory Commission procedure comes to an end.

Useful annexes

The Circular includes two useful attachments, a first one indicating the various dispute resolution mechanisms open to the taxpayer in international situations (there are four of them), a second one listing the numerous deadlines for the procedures introduced by the Directive and the Law of 2019 implementing it.

Which procedure should be chosen?

Obviously, it will be up to the taxpayer, and not the tax authorities, to choose one or other mechanism. A great many factors may come into play:  

• If the period for domestic recourse or the period for the mutual agreement procedure provided for in the relevant double tax treaty has expired, the taxpayer will choose the mechanisms provided for in the Directive if he still wishes to contest a tax assessment, but he must be aware of the cumbersome and relatively slow nature of these procedures and therefore of the counselling costs;  
• A taxpayer who assumes that the competent authority in his country (or even the courts in his country) will have an unfavorable view of his case may choose the route provided by the Directive rather than recourse to domestic law remedies, as in this way he is likely to provoke a confrontation between the point of view of his national tax authority and that of the other country, which could turn out in his favour.
• For a complex transfer pricing dispute, the European Arbitration Convention 90/436/EEC of 23 July 1990 should be preferred.
• In high-stakes disputes, the taxpayer could play on several fronts and, for example, lodge a domestic appeal, leading to legal proceedings before an independent judge, as well as the mechanisms of the Directive, but he will have to ensure that the legal procedure does not become definitive, in which case the mechanisms of the Directive are then out of play.

A recourse under domestic law may have a suspensive effect on the payment of the disputed tax (art. 61 of the Collection code; that part of the tax exceeding the “incontestablement dû/onbetwistbaar gedeelte”). Will it also be the case of the recourses organized by the Directive? The Circular does not address this issue. We believe the mechanisms of the Directive are administrative recourses organized by a statute including tax provisions and as such, meet the conditions to have suspending effect as well (art. 1, 9° and 11° of the Collection code).