Institute for Austrian and International Tax Law Session IX. “I had a dream…” A Gradual Approach to Improving Dispute Resolution with particular reference to LDC International Arbitration in Tax Matters: The Lead-up to the G20 and UN Meetings Vienna, October 13, 2015

Institute for Austrian and International Tax Law The Proposal 1.Amended Model Text for Art 25 UN MC 2.A Mininum Standard – an MFN clause 3.Procedural rules for mandatory dispute settlement a)Default procedure b)Streamlined approach 4.Procedural rules for mediation

Institute for Austrian and International Tax Law The Need for a New Framework  Arbitration has only been embraced by a limited number of countries and is adopted in very few tax treaties (approx. 178 of over 3.000)  Most developing countries are skeptical towards it, some countries are very vocally opposing it. Yet some are now being forced into it by OECD countries  The OECD was unable to reach a consensus  move forward by a „coalition of the willing“ The Proposal builds on the experience of the EU, OECD, WTO, TTIP and others. There is a need for an approach which addresses the concerns of LDC.

Institute for Austrian and International Tax Law A Gradual Approach Developing countries have difficulties coming to terms with mandatory binding arbitration, so we need  1) gradual approach  3 built-in stages:  MAP  Mediation  Arbitration - Different options and safeguards for each stage 2) Starting point was the UN MC  option to deviate from the panel determination

Institute for Austrian and International Tax Law Timelines MAP 2 years as baseline May be shortened or extended (max 3 years) Mediation Mandatory, unless agreement not to pursue Approx. 100 days (max. 120 days) Mandatory Dispute Settlement Two options for procedural rules Depending on procedure – maximum duration: Approx. 200 days for streamlined approach Approx. 240 days for the default approach

Institute for Austrian and International Tax Law Modifications to the MAP  Art 25 [B] UN MC has essentially remained unchanged except for the time frame  New provision: Art 25 (8) – possibility to accelerate or delay the end of the MAP  Extension by a max. of one year, if:  Agreement can be reached within a short period of time, or  Delay in receiving information, or  Significant new information has arisen after the commencement, or  Lack of capacity.

Institute for Austrian and International Tax Law The Institutional Framework  Independent tribunal under UN auspices  Detailed procedural guidelines  Panel of pre-cleared arbitrators/chairs  Training program for arbitrators  WTO type of fund for assistance to LDC

Institute for Austrian and International Tax Law Institutional Dispute Settlement - Default mechanism  Independent tribunal nominated from a pre- approved list (vetted by the institution)  Heavy involvement of CA on the panel, that may gradually be scaled down  Participation of taxpayers + third parties  Cap on costs that can be refunded + establishment of a common fund + pro bono legal representation  Greater transparency – some aspects of the decision must be published

Institute for Austrian and International Tax Law Streamlined process  Only issues of fact – dual residency + transfer pricing  Requested by taxpayer of competent authority, but only implemented if both CAs agree  Smaller, entirely independent panel  No hearings, only written communications – limited number of pages  Very quick decision  No taxpayer participation  Greater transparency – main aspects published

Institute for Austrian and International Tax Law Mediation  Mandatory additional stage  Independent mediator chosen from a list of pre- approved persons  Non-binding  No taxpayer participation  If only some issues are submitted  other unresolved issues undergo mandatory dispute settlement  Default: 60 days of mediation  Stringent confidentiality requirements  Same procedural rules could apply for other means of supplementary dispute resolution eg expert determination

Institute for Austrian and International Tax Law MFN Clause  It is understood that in the event that pursuant to an agreement or convention for the avoidance of double taxation concluded with a third country after the date of signature of this convention [/protocol], State X agrees to include a mandatory dispute settlement provision in such agreement or convention, the competent authorities of State X and State Y will start negotiations, as soon as possible, in view of concluding an amending Protocol which inserts a mandatory dispute settlement provision into this agreement.   In the event that State X agrees to include an optional dispute settlement provision in the agreement or convention concluded with a third country after the date of signature of this convention [/protocol], the competent authorities of State X and State Y will start negotiations, as soon as possible, in view of concluding an amending Protocol which inserts an optional dispute settlement provision into this agreement.

Institute for Austrian and International Tax Law How will the gradual approach work? Mediation Default mechanism (panel of 7) Deviation from determination No need to deviate Default mechanism (panel of 5/3) Streamlined approach

Institute for Austrian and International Tax Law INSTITUTE FOR AUSTRIAN AND INTERNATIONAL TAX LAW Welthandelsplatz 1, 1020 Vienna, Austria JEFFREY OWENS LAURA TURCAN T DW F