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Mutual Agreement Procedure / EU Arbitration

Adjustments made by the Belgian tax authorities within the framework of a transfer pricing audit can trigger (economic) double taxation in case of an upward adjustment of the Belgian taxpayer’s taxable basis. In case an audit has resulted in double taxation, taxpayers have the option to take action and resolve the effect thereof. The options depend on the resident country / respective double tax treaty of the counterparty of the dealings that are the object of the adjustment. Hereafter we present two options to resolve double taxation, Mutual Agreement Procedure and Arbitration.

Mutual Agreement Procedure

Belgian taxpayers facing the issue of double taxation can invoke the relevant double tax treaty (DTT), which have been concluded by the Belgian tax authorities and the counterparties explicitly for the avoidance of double taxation. Most DTTs include a clause “Mutual Agreement Procedure” (MAP). In the most recent OECD’s Model Tax Convention, this is included in Article 25. When analyzing your MAP options, the relevant DTT of the jurisdictions involved should always be consulted, as there are differences in clauses depending on the DTT. In the MAP clause, the treaty partners are encouraged to endeavour to resolve the case by mutual agreement by entering into negotiations between the respective competent authorities. Despite the efforts to which both treaty partners are encouraged, most DTTs do not include a formal obligation for the competent authorities to come to an agreement effectively eliminating double taxation. This leads to uncertainty for taxpayers.

Based on the 2022 OECD statistics, the average time of obtaining an outcome for a MAP relating to transfer pricing cases is approximately 28,9 months, whereas Belgium indicates the average time to be approximately 23,4 months.

The outcome of a MAP procedure could - amongst others - be:

  • Agreement fully or partially eliminating double taxation / fully or partially resolving taxation not in accordance with tax treaty (applicable to 59% of all MAP cases closed in 2022, for cases in which Belgium was involved this amounted also to 59% for all cases, and 81% for transfer pricing cases);

  • Unilateral relief granted;

  • Resolving double taxation via a domestic remedy.

Arbitration Clauses / European Arbitration Convention

As were the MAP is only encouraging the jurisdictions to endeavour to resolve double taxation by mutual agreement, the Arbitration procedure binds jurisdictions to resolve double taxation.

Some of the DTTs that Belgium has concluded include such Arbitration Clause (although only in a minority of cases, notwithstanding this is included in the model tax convention of Belgium), whereby a final and binding decision has to be taken by an independent arbiter to eliminate the double taxation.

More importantly, for EU Member States, an arbitration resolution mechanism is regulated in the EU Arbitration Convention, whereby taxpayers can impose the opinion of an independent advisory body that is binding for the competent authorities of the treaty partners.

In general, taxpayers hence have more comfort of seeing double taxation being resolved when it occurs within Europe.

MAP and Arbitration procedures may take some time prior to being concluded, but often are an option worth exploring, of course also considering materiality of the double taxation that has arisen.



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