1. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw1 How Final are Arbitration Decisions? Prof. Dr. Alexander Rust, LL.M.

2. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw2 Contracting States Art. 25(5) OECD MC: The arbitration decision shall be binding on both Contracting States unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision.

3. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw3 Contracting States Art. 25B(5) UN MC and OECD MC Comm. on Art. 25 par. 84: => More flexibility The Competent Authorities may agree on a different solution within six months after the decision has been communicated to them.

4. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw4 Contracting States Art. 12(1) EU Arbitration Convention: Opinion of the advisory committee is not binding. However, the Competent Authorities have to follow the opinion if they fail to reach agreement within 6 months after the opinion was delivered.

5. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw5 Taxpayer Taxpayer is not bound by the arbitration decision. Taxpayer may either accept the agreement implementing the arbitration decision which requires abandoning any remaining domestic legal remedies or reject the agreement to pursue those domestic legal remedies.

6. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw6 Domestic Courts Jurisdiction? Taxpayer brings an action against a Contracting State to implement the arbitration decision (or to implement the mutual agreement). Contracting State argues that arbitration decision is void.

7. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw7 Domestic Courts Jurisdiction? Both Contracting States implement the mutual agreement and change the tax assessment. Taxpayer brings an action against the reassessment in one Contracting State.

8. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw8 Domestic Courts Legal remedies possible?  Taxpayer only gave up legal remedies against the original assessment. He still might be entitled to go against the reassessment. Gravamen?  Reassessment might lead to a higher tax liability. (Other Contracting State might have given up its tax claim.)

9. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw9 Effect of domestic court decision Par. 18 Sample Mutual Agreement on Arbitration:  The arbitration decision shall be final, unless that decision is found to be unenforceable by the courts of one of the Contracting States…  If a decision is found to be unenforceable…, the request for arbitration shall be considered not to have been made and the arbitration process shall be considered not to have taken place.

10. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw10 Domestic Courts  Challenging the arbitration decision in front of domestic courts is not the ideal solution.  International body would be better suited to analyze the validity of an arbitration decision.

11. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw11 Who should decide?  Same arbitral tribunal?  Nemo iudex in sua causa  Consent of winning Competent Authority?  Prior consent?  Art. 52 ICSID Convention as an example?  Ad hoc committee of 3 person. The committee shall have the authority to annul the award or any part thereof on any of the grounds set forth in Art. 52(1).  Explicit rule needed.

12. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw12 Jurisdiction of ICJ Art. 36(1) ICJ Statute: The jurisdiction of the Court comprises all cases which the parties refer to it and all matters specifically provided for in the Charter of the United Nations or in treaties and conventions in force.

13. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw13 ICJ of 18 November 1960 Art. 36(1) ICJ Statute: Arbitral Award made by the King of Spain  Determination of the frontier between Honduras and Nicaragua on 23 December 1906  Designation of the King of Spain as arbitrator  Treaty provided that each state elects one representative plus member of the diplomatic corps of Guatemala or any foreign or Central American public figure or submitted to the government of Spain.

14. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw14 Jurisdiction of ICJ Art. 36(2) ICJ Statute: The states parties to the present Statute may at any time declare that they recognize as compulsory ipso facto and without special agreement, in relation to any other state accepting the same obligation, the jurisdiction of the Court in all legal disputes concerning: a)… b) any question of international law

15. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw15 ICJ of 2 March 1990 Art. 36(2) ICJ Statute: Arbitral Award Guinea-Bissau v. Senegal  Boundary between the states  Manifest error? One judge attached a declaration to the award stating the opposite of what he had decided.  “The two declarations made by the Parties under Art. 36(2) of the Statute and invoked by the Applicant do appear, prima facie, to afford a basis of jurisdiction.”

16. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw16 Particular Treaties Art. 25(5) DTC Austria/Germany 2000  The Competent Authorities are obliged to refer the case to arbitration proceedings before the European Court of Justice pursuant to Art. 273 TFEU. Art. 41(5) DTC Germany/Sweden 1992  Reference to the European Convention on the Peaceful Settlement of Disputes => ICJ

17. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw17 Grounds for Nullity Balance between:  Legal certainty: Arbitration decision should definitely settle the dispute  Correctness: Arbitration decision may be wrong and may damage the image of arbitration proceedings as a whole.

18. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw18 Grounds for Nullity Par. 18 Sample Mutual Agreement on Arbitration:  The arbitration decision shall be final, unless that decision is found to be unenforceable by the courts of one of the Contracting States because of a violation of paragraph 5 of Article 25 or of any procedural rule included in the Terms of Reference or in this agreement that may reasonably have affected the decision.

19. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw19 Grounds for Nullity  Excess of Power / Lack of Jurisdiction  Arbiter nihil extra compromissum facere potest.  Another tax year / another taxpayer  Essential or Manifest Error (-)  Corruption of an arbiter  Arbitral Tribunal was not properly constituted  Serious departure from a fundamental rule of procedure (ICSID)  Award failed to state the reasons on which it is based (ICSID)

20. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw20 Proposals  ICSID: Include an arbitral tribunal in the Sample Mutual Agreement on Arbitration which is entitled to examine the validity of the arbitration decision.  Better than domestic court decisions.  Time limits (ICSID 120 days)  State the reasons which lead to the nullity of the arbitral award.

21. Institut für Österreichisches und Internationales Steuerrecht www.wu.ac.at/taxlaw21 INSTITUT FÜR ÖSTERREICHISCHES UND INTERNATIONALES STEUERRECHT Welthandelsplatz 1, Gebäude D3, 1020 Wien Österreich Univ.-Prof. Dr. Alexander Rust, LL.M. T +43-1-313 36-4772 F +43-1-313 36- 90 730 Alexander.Rust@wu.ac.at www.wu.ac.at/taxlaw How final are arbitration decisions?