Lehrstuhl für Steuerrecht und Öffentliches Recht Prof. Dr. Roland Ismer MSc Econ. (LSE)/Prof. Dr....

Lehrstuhl für Steuerrecht und Öffentliches RechtProf. Dr. Roland Ismer MSc Econ. (LSE)/Prof. Dr. Klaus MeßerschmidtGrundlagen Staats- und Verwaltungsrecht – Vorlesung vom 22.10.2009

Prof. Roland Ismer Chair for Tax Law and Public LawUniversity Erlangen-Nuremberg

Improving Arbitration under Tax Treaties: Two Steps (in the Right Direction) are Better than One!

Prof. Roland Ismer



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OverviewA. IntroductionB. Mutual Agreement Procedure in Tax TreatiesC. Arbitration under Tax TreatiesD. Developing MAP and Arbitration into a Two-Step ProcedureE. Conclusion



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A. Introduction



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B. Mutual Agreement Procedure in Tax Treaties



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I. Types of Mutual Agreement Procedures (MAPs)

• specific case MAP under paras. 1 and 2• interpretative mutual MAP under para. 3, first sentence• legislative MAP under para. 3, second sentence



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II. The specific case MAP

• Irrespective of domestic remedies• Provides additional protection for taxpayer• Competent authorities not obliged to reach agreement

(“endeavour”)• Competent authorities may rely on equity

considerations



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III. Advantages of the specific case MAP

• very flexible• considerable goodwill (“procédure amiable”)• can be very cheap for the taxpayer • significant institutional experience



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IV. Disadvantages (“far from perfect instrument”)

• No guarantee for a just outcome• weak position of the taxpayer, who is not a party to the

procedure• no obligation to reach an agreement • opacity of decision-making • rather time-comsuming



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C. Tax Treaty Arbitration



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III. Arbitration as part of the MAP, not distinct from it

• not up to the taxpayer to decide whether the dispute was resolved

• competent authorities in control during the entire course of arbitration procedure

• Mutual agreement possible before decision by arbitrators (but not afterwards)



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IV. Implications for domestic remedies

• Just as under an ordinary MAP: Irrespective of domestic remedies

• Parallelism between MAP/Arbitration and domestic remedies

• Requirement of prior waiver unconstitutional in some countries (among them Germany)



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D. Developing MAP and Arbitration into a Two-Step Procedure



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I. Possible Two-Step Procedure

• Specific case MAP followed by mandatory arbitration• Taxpayer party to arbitration, but not to MAP• Mutual agreement blocks mandatory arbitration only if

taxpayer agrees• Then parallel domestic court proceedings no longer

necessary



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II. Advantages of Two-Step Procedure

• Best of two worlds: combines advantages of MAP with those of arbitration

• Taxpayer protected through consent requirement• Avoids parallel proceedings and thus problems with

respect to res iudicata; waiver acceptable where arbitration has sufficient traits of adjudication

• Open for multilateral problems



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III. Selected Procedural Requirements

• Choice of arbitrators guaranteeing their functional independence: personal qualification; personal position (judge!?!)

• Unanimity principle for party autonomy• Taxpayer as party with identical procedural rights• Public scrutiny?• Reasoned and published awards?• Annulment procedures• Procedural rules and seat of arbitration fixed beforehand



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E. Conclusion

Lehrstuhl für Steuerrecht und Öffentliches Recht Prof. Dr. Roland Ismer MSc Econ. (LSE)/Prof. Dr....

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