C.D.11.15.2.2.2 Mutual Agreement Procedure (MAP) within the EU

This section concerns the opportunities under the Mutual Agreement Procedure (MAP) within the EU.

The section includes:

Double taxation treaties
EU Arbitration Convention
EU Arbitration Directive

Double taxation agreements

Rule

Denmark has concluded double taxation treaties with most countries with which Danish enterprises trade, including most countries within the EU. Most of these agreements include a provision concerning resolution of transfer pricing double taxation (usually in article 9 concerning associated enterprises and in article 7 concerning permanent establishments). Together with the provision concerning associated enterprises, the article concerning MAP (usually article 25) is applied.

An overview of all applicable Danish double taxation treaties can be found here.

Referring a case

If an enterprise considers that actions taken by the tax authorities of one or both countries will result in transfer pricing double taxation, the enterprise may refer its case to the competent authority of the contracting state in which the enterprise is resident for the purpose of resolving the transfer pricing double taxation by MAP. This is subject to the condition that Denmark has a double taxation treaty (in force) with the other state in question.

In many double taxation treaties, it is also possible to refer its case to the competent authorities in both contracting states.

A double taxation treaty may include a time limit by which any case must be referred. In the OECD Model Tax Convention, article 25(1), the time limit is stated as ‘... within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention’.

In Denmark, the ruling is considered to be the first notification.

The fact that an enterprise requests the resolution of double taxation under a double taxation treaty does not deprive the enterprise of the opportunity to simultaneously use the ordinary complaint channels (i.e. the Danish Tax Appeals Agency (Skatteankestyrelsen) and the courts).

The Danish Customs and Tax Administration (Told- og Skatteforvaltningen) is authorised to make decisions as a competent authority under the double taxation agreements. See Executive Order no. 1029 of 24 October 2005 concerning the competent authority.

Competence in transfer pricing cases is administratively vested in the Danish Tax Agency, Large Companies - Competent Authority.

Formal requirements

Article 25 of the Model Tax Convention does not set out specific formal requirements for a request for initiation of MAP. No specific formal requirements apply under Danish rules, either.

Under the general rules for raising an objection concerning a tax assessment, however, the request must be specified in such a way as to enable the competent authority to decide whether the request can be accommodated.

Under the OECD guidelines - ‘BEPS Action 14 on More Effective Dispute Resolution Mechanisms - Peer Review Documents’, a request must at least include:

Name and address, tax identification number(s) or birth date (where appropriate) of the taxpayer(s) concerned.
Details of the tax authority of the other country that has made or is expected to make a tax assessment in breach of the double taxation agreement (where relevant).
Identification of the tax periods concerned.
Details of the relevant facts and circumstances of the case, including the assessed amount of the income in question.
Indication of the article(s) of the double taxation treaty which the taxpayer does not believe to be applied correctly.
The taxpayer’s view of how the double taxation treaty should be interpreted.
Details of any contact with other competent authorities concerning the same matter.
Details of any complaint against the tax assessments in question.
Any declaration of consent for the Danish Tax Agency to contact a representative. See the tax notice SKM2008.848.SKAT.
Information on whether the request has been sent to other authorities.
An undertaking that the taxpayer will respond as completely and quickly as possible to all reasonable and relevant requests from a competent authority and will make documentation available to the competent authorities.
Taxpayer identification number of other taxpayers involved.
Description of the controlled transactions and how the internal prices are set.

It should be noted that the last two items are special information required in transfer pricing cases. See C.F.8.2.2.25.2 about taxpayers request for a MAP.

Negotiation obligation

If the competent authorities are of the opinion that the conditions for initiating MAP exist, they will only be obliged to seek to achieve a solution that resolves the transfer pricing double taxation. On the other hand, they are not obliged to reach an agreement on resolving the double taxation that has occurred. However, see the later sections relating to the possibility for arbitration.

In some respects, the definition of associated enterprises in article 9 of the OECD’s Model Tax Convention is more extensive than the definition in section 2 of the Tax Assessment Act. On applying a double taxation treaty, the Danish Tax Agency must use the definition in the double taxation treaty.

Negotiation outcome

The enterprise will always be requested to approve the outcome of the negotiations with the foreign competent authority.

If the enterprise declines to acknowledge the outcome which resolves the double taxation, the assessment, and thereby also the double taxation, will be upheld.

If the enterprise acknowledges the outcome of the negotiation, the outcome will be conditional on the withdrawal of any ongoing complaint cases under national auspices.

EU Arbitration Convention

Rule

The EU Arbitration Convention (formerly the EC Arbitration Convention) may be applied as an element of MAP in transfer pricing double taxation situations between two or more EU member states. MAP may be requested under both the EU Arbitration Convention and the relevant double taxation treaty.

The most recent Danish Act concerning the EU Arbitration Convention is Consolidation Act no. 347 of 1 March 2021 on mechanisms for the settlement of tax disputes in the European Union (the Danish Tax Dispute Settlement Act) (Skattetvistbilæggelsesloven).

See link to the EU Arbitration Convention here.

All EU member states are subject to the EU Arbitration Convention.

The EU Arbitration Convention solely concerns the resolution of transfer pricing double taxation and, in this area, is an alternative to the application of any double taxation agreement in order to resolve double taxation.

The EU Arbitration Convention applies to enterprises and permanent establishments, so that in practice most situations arising will be covered.

In the Danish Tax Agency’s view, disputes concerning thin capitalisation could be considered in accordance with the rules of the EU Arbitration Convention. This is subject to the condition that the competent authority of the other country takes the same view. Not all countries take the same view as Denmark, which is apparent from item 1.2 of the Revised Code of Conduct. Thin capitalisation, note 1.

The Danish Tax Agency’s competent authority will not be obliged to initiate a procedure under the EU Arbitration Convention, or to establish the advisory commission referred to in article 7, if it is finally determined by a judicial or administrative procedure that one of the enterprises concerned could be sentenced to a severe penalty due to actions which give rise to a transfer pricing adjustment. In Denmark’s case, the term ‘severe penalty’ is delineated as a penalty for deliberate infringement of criminal provisions of the Danish Criminal Code (Straffeloven) or special legislation in cases where the criminal case cannot be settled administratively.

In the same way, questions subject to the EU Arbitration Convention cannot be considered by the advisory commission if the matter is brought before the Danish courts. See Executive Order no. 685 of 2 July 2019 on tax dispute resolution.

Note

The EU Arbitration Convention uses the term ‘an enterprise’. This means that both natural persons and legal entities that otherwise fulfil the convention’s requirements may submit a request.

Referring a case

The enterprise must submit the request for initiation of MAP under the EU Arbitration Convention to the competent tax authority of the country in which the enterprise is resident or in which the permanent establishment is situated.

The Danish Customs and Tax Administration is authorised to make decisions as a competent authority under the double taxation agreements. See Executive Order no. 1029 of 24 October 2005 concerning the competent authority.

Competence in transfer pricing cases is administratively assigned to the Danish Tax Agency, Large Companies - Competent Authority.

The fact that an enterprise requests MAP under the EU Arbitration Convention does not deprive the enterprise of the opportunity to simultaneously use the ordinary complaint channels (i.e. the Tax Appeals Agency and the courts).

The case must be referred within three years after the enterprise has received the first notification of the transfer pricing adjustment (the increase). See article 6 of the EU Arbitration Convention. In Denmark, the ruling is considered to be the first notification.

Once the case has been submitted to one of the competent authorities, the competent authorities of the two countries have two years to enter into an agreement at official level to resolve the double taxation. See article 7 of the EU Arbitration Convention. According to the Code of Conduct, the two-year deadline does not begin to run until the taxpayer has provided the following material (minimum information):

Identification (such as name, address, tax identification number) of the enterprise of the Member State that presents its request and of the other parties to the relevant transactions.
Details of the relevant facts and circumstances of the case (including details of the relations between the enterprise and the other parties to the relevant transactions).
Identification of the tax periods concerned.
Copies of the tax assessment notices, tax audit report or equivalent leading to the alleged double taxation.
Details of any complaints and litigation procedures initiated by the enterprise or the other parties to the relevant transactions and any court decisions concerning the case.
An explanation by the enterprise of why it considers that the principles set out in article 4 of the Arbitration Convention have not been observed.
An undertaking that the enterprise shall respond as completely and quickly as possible to all reasonable and appropriate requests made by a competent authority and have documentation at the disposal of the competent authorities.
Any specific additional information requested by the competent authority within two months upon receipt of the taxpayer’s request.

See item 5 (a) of the Revised Code of Conduct.

According to the Code of Conduct, the two-year period starts on the latest of the following dates:

The date of the tax assessment notice, i.e. a final decision of the tax administration on the additional income, or equivalent.
The date on which the competent authority receives the request and the minimum information as stated above.

See item 5 (b) of the Revised Code of Conduct.

If, within two months of receiving the request and the minimum information, the competent authority requests further information, the two-year period will not begin until the additional information has been received.

In SKM2021.582.ØLR, the Eastern High Court of Denmark has determined that there are low requirements to substantiate that an complaint under article 6(2) of the EU Arbitration Convention appears justified, and thereby for the initiation of MAP.

It is consequently not a condition for a case to be deemed to have been brought under article 6(1) of the EU Arbitration Convention that the case has also been submitted under article 7(1). This entails that the two-year negotiation period referred to in article 7(1) does not commence on the date on which the case has solely been brought under article 6, but only on the date on which the competent authority has received both the request and the minimum information as provided for in item 5 (a) of the Revised Code of Conduct.

For MAP to be initiated, there is thus solely a requirement to prove that a complaint under article 6(2) appears to be justified. Section C.F.8.2.2.25.2 and above set out the formal requirements as laid down in the OECD guidelines - ‘BEPS Action 14 on More Effective Dispute Resolution Mechanisms - Peer Review Documents’.

The material by and large corresponds to the material listed in item 5 (a) of the Revised Code of Conduct, except for item 5 (a) (viii) of the Code of Conduct. Once a case has been brought in accordance with article 6, and if the Danish Tax Agency cannot itself achieve a satisfactory solution, it will endeavour to resolve the case by MAP. MAP requires that the competent authorities involved agree that the case has been brought in accordance with article 6. If a foreign competent authority does not accept that a case has been brought in accordance with article 6, MAP cannot be undertaken.

In SKM2016.354.VLR, the Western High Court of Denmark has considered which requirements may be derived from item 5 (a) (ii) of the Code of Conduct (‘details of the relevant facts and circumstances of the case (including details of the relations between the enterprise and the other parties to the relevant transactions)’) - and whether a request for MAP under the EU Arbitration Convention could, in this light, be rejected as having been submitted too late, due to a lack of information.

Large Companies - Competent Authority assesses whether the material received is sufficiently extensive for the case to be deemed to have been submitted.

Decisions by the Danish Tax Agency’s competent authority not to accept a request for MAP under the EU Arbitration Convention may not be appealed to another administrative authority but must instead be referred to the courts. See SKM2016.354.VLR, where the high court found that the EU Arbitration Convention must be deemed to be subject to the provision in Executive Order no. 1029 of 24 October 2005 concerning the competent authority.

Advisory commission

If the competent tax authorities of the two countries fail to reach agreement on the resolution of double taxation within two years from the date of submission of the minimum information, an advisory commission must be appointed.

With the enterprise’s agreement, however, it may be agreed to extend the two-year deadline.

A question subject to the EU Arbitration Convention cannot be referred to an advisory commission if the question has been brought before the Danish Courts.

Appointment of the advisory commission is subject to a deadline of six months.

The advisory commission must submit its opinion on the allocation of revenue and expenditure within six months from the date on which the matter was submitted to the commission.

The competent authorities will then have six months to reach a decision by mutual agreement to ensure resolution of the double taxation. The competent authorities may take a decision that deviates from the opinion of the advisory commission. If they cannot reach agreement in this respect, they are obliged to act in accordance with the opinion.

Under article 9(4) of the EU Arbitration Convention, each member state must designate five independent persons to undertake the duties of the advisory commission, and these persons must be entered to a list. See a link to the list here.

Negotiation outcome

The enterprise will always be requested to approve the outcome of the negotiations with the foreign competent authority.

If the enterprise declines to acknowledge the outcome which resolves the double taxation, the assessment will be upheld and the double taxation will thereby remain unchanged.

If the enterprise acknowledges the outcome of the negotiation, the outcome will be conditional on the withdrawal of any ongoing complaint cases under national auspices.

EU Arbitration Directive

Rule

Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (the EU Arbitration Directive) lays down rules for a mechanism for the resolution of disputes between member states when these disputes arise in connection with the interpretation and application of agreements and conventions providing for the elimination of double taxation of income and capital. It also establishes the rights and duties of the persons concerned when such disputes arise.

The EU Arbitration Directive is based on the EU Arbitration Convention, which already includes a mandatory binding arbitration mechanism, although the Directive extends the scope of application, since the purpose of the EU Arbitration Convention is to resolve double taxation in transfer pricing cases, while the EU Arbitration Directive applies to all taxpayers liable to pay tax on income and capital that is covered by bilateral agreements and/or the EU Arbitration Convention. Moreover, the EU Arbitration Directive adds targeted enforcement measures to address the most important shortcomings identified in terms of the enforcement and effectiveness of the arbitration mechanism.

In transfer pricing double taxation situations within the EU, going forward the taxpayer is free to choose between applying the EU Arbitration Convention and the EU Arbitration Directive to the resolution of tax disputes. It should be noted, however, that there are differing procedures for the application of the EU Arbitration Convention and the EU Arbitration Directive, respectively.

The EU Arbitration Directive may be applied to all complaints filed as from 1 July 2019 concerning disputed matters relating to income or capital in an income year beginning on or after 1 January 2018. However, the competent authorities may decide to apply the EU Arbitration Directive to any complaint filed before this date, or to a previous income year.

The EU Arbitration Directive sets out a system consisting of three stages: 1) Filing the appeal, 2) MAP and 3) dispute resolution through arbitration.

The EU Arbitration Directive is described further in section C.F.8.4.

See link to the EU Arbitration Directive here.

Documentation requirements

Under the directive, the request must include various information to identify the affected person, a description of the case, and reference to relevant rules and relevant documents to describe the case.

The complaint shall only be accepted if, as a first step, the affected person making the complaint provides the competent authorities of each of the Member States concerned with the following information (article 3):

The name(s), address(es), tax identification number(s) and any other information necessary for identification of the affected person(s) who presented the complaint to the competent authorities and of any other person concerned.
The tax periods concerned.
Details of the relevant facts and circumstances of the case (including details of structure of the transaction and of the relationship between the affected person and the other parties to the relevant transactions, as well as any facts determined in good faith in a mutual binding agreement between the affected person and the tax administration, where applicable) and more specifically, the nature and the date of the actions giving rise to the question in dispute (including, where applicable, details of same income received in the other Member State and of inclusion of such income in the taxable income in the other Member State, and details of the tax charged or that will be charged in relation to such income in the other Member State), as well as the related amounts in the currencies of the Member States concerned, with a copy of any supporting documents.
Reference to the applicable national rules and to the agreement or convention referred to in article 1 of the EU Arbitration Directive. Where more than one agreement or convention is applicable, the affected person making the complaint shall specify which agreement or convention is being interpreted in relation to the relevant question in dispute. Such agreement or convention shall be the applicable agreement or convention for the purposes of this Directive.
The following information provided by the affected person who presented the complaint to the competent authorities, together with copies of any supporting documents:
- An explanation of why the affected person considers that there is a question in dispute.
- The details of any appeals and litigation initiated by the affected person regarding the relevant transactions and of any court decisions concerning the question in dispute.
- A commitment by the affected person to respond as completely and quickly as possible to all appropriate requests made by a competent authority and to provide any documentation at the request of the competent authorities.
- A copy of the final tax assessment decision in the form of a final tax assessment notice, tax audit report or other equivalent document leading to the question in dispute and a copy of any other documents issued by the tax authorities about the question in dispute where relevant.
- Information on any complaint submitted by the affected person under another mutual agreement procedure or under another dispute resolution procedure as defined in article 16(5) of the EU Arbitration Directive and an express commitment by the affected person that he will abide by the provisions of article 16(5), if applicable.

Any specific additional information requested by the competent authorities that is considered necessary to undertake the substantive consideration of the case.

The tax authorities concerned will then have a period of three months to request further information in accordance with the last aforementioned item. The taxpayer has a period of three months to respond to the tax authorities’ request. Within six months of receipt of the request or receipt of any additional information requested by the tax authority, the tax authorities will decide whether the complaint can be accepted or rejected.

If the competent authority does not decide to refuse the case within six months of receipt of the request or receipt of any additional questions, the request will be deemed to have been accepted for consideration by the competent authority concerned.

Contents

Double taxation agreements

Rule

Referring a case

See also

Formal requirements

Negotiation obligation

See also

Negotiation outcome

EU Arbitration Convention

Rule

See also

Note

Referring a case

Advisory commission

Negotiation outcome

EU Arbitration Directive

Rule

Documentation requirements