GUIDELINES FOR REQUESTING MUTUAL AGREEMENT PROCEDURE
1. Introduction
The purpose of this guideline is to set out the process through which taxpayers can request assistance from the Competent Authority in Croatia to resolve disputes arising from taxation not in accordance with the provisions of the relevant double taxation agreement (“DTA”), EU Arbitration Convention and/or Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (Council Directive”). Competent authority in Croatia is Ministry of finance, Tax Administration. Taxpayers may request mutual agreement procedure (“MAP”) assistance under the terms of the relevant DTA, EU Arbitration Convention and/or Council Directive. MAP assistance is provided by Tax Administration – Central Office, Legislation - Education and International Cooperation Sector, Department for Avoidance of Double Taxation. Contact details for submitting a request for MAP assistance to Tax Administration are included in Appendix 1 of this guideline.
1.1 Legal basis for a MAP request
Article 25 of the OECD’s Model Tax Convention on Income and on Capital (“MTC”) provides a mechanism to resolve difficulties arising where the actions of one or both of the Contracting States result or will result for the taxpayer concerned in taxation not in accordance with the provisions of the agreement. Under the equivalent of Article 25(2) of the MTC, within the relevant Croatian DTA, Tax Administration will endeavour to resolve such cases by mutual agreement with the Competent Authority of the other Contracting State. In such a case a taxpayer may request assistance from the Competent Authority to resolve the issue.
Generally, Croatian DTAs state that taxpayers must approach the Competent Authority of their country of residence to request MAP assistance.
In cases where an adjustment to profits is made by a tax administration that affects related parties in different jurisdictions, it is advisable for each taxpayer to make a separate request for MAP assistance to the Competent Authority of the country in which it is resident.
It may be noted that in June 2017 Croatia was one of a number of countries that signed the Multilateral Instrument (“MLI”)[5] as part of the OECD Base Erosion and Profit Shifting (“BEPS”) project. One of the provisions of the MLI allows taxpayers to approach the Competent Authority of either jurisdiction to request MAP assistance under a DTA.
However, Croatia does not intend to adopt this provision by ratifying the MLI, Croatia intends to place a reservation on the same provision, which would mean that Croatia retains the right that a taxpayer, in case that actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of the Agreement, present his case to the competent authority of the Contracting State of which he is a resident.
Taxpayers should consult the relevant DTA and the relevant MLI provisions (following ratification by both treaty partners) when making a MAP request.
Article 6 of the EU Arbitration Convention provides that a taxpayer may present a MAP request to the Competent Authority where the taxpayer considers that the principles contained in Article 4 of the EU Arbitration Convention have not been observed. For such cases, the request should be submitted to the Competent Authority of both jurisdictions at the same time[6].
Article 3 of the Council Directive provides that any affected person shall be entitled to submit a complaint on a question in dispute to each of the competent authorities of each of the Member States concerned, requesting the resolution thereof. The affected person shall simultaneously submit the complaint with the same information to each competent authority, and shall indicate in the complaint which other Member States are concerned.
2.1. Valid MAP request as considered by Tax Administration under the DTA EU Arbitration Convention and/or Council Directive
In order to request MAP assistance, a taxpayer must submit the MAP request in writing to the relevant Competent Authority, providing the required information as specified in section 2.1.2 below, of the action that has resulted or will result in taxation not in accordance with the relevant DTA EU Arbitration Convention and/or Council Directive[7].
The MAP request must be submitted within the time limit specified in the applicable DTA , time limit specified in Article 6 of the EU Arbitration Convention and/or time limit specified in Article 3 Council Directive (refer to section 2.1.1 below).
A valid MAP request must contain the minimum information set out in section 2.1.2 below.
2.1.1. Time limit for making a MAP request
The time limit for submitting a request for MAP assistance under a DTA is determined by the relevant DTA. Generally, Croatian DTAs follow Article 25 of the MTC and provide that a request for MAP assistance must be submitted within 3 years from the first notification of the action resulting in taxation not in accordance with the agreement. However, some treaties provide for a different time period (for example two years) or time period is not mentioned (for example DTA with Sweden).
Therefore, taxpayers should always consult the relevant DTA at an early stage to ensure that they submit a request for MAP assistance within the specified time limit. If the time limit is not explicitly stated in the DTA (Sweden) domestic statutes of limitations apply.
Where the time limit specified in a DTA has not been met, a request for MAP assistance will not be accepted.
Where taxpayers request MAP assistance under the EU Arbitration Convention, Article 6(1) provides that a MAP request must be presented within 3 years from the first notification of the action which results or is likely to result in double taxation.
In accordance to Article 3 of the Council Directive the complaint shall be submitted within 3 years from the receipt of the first notification of the action resulting in, or that will result in, the question in dispute, regardless of whether the affected person has recourse to the remedies available under the national law of any of the Member States concerned.
Tax administration considers the date on which the taxpayer receives the first tax assessment notice or equivalent that results in double taxation as being the beginning of the 3 year period.
2.1.2. Minimum information required to be a valid MAP request
In order for a MAP request to be considered a valid request under the DTA, the MAP request submitted to the Competent Authority under the equivalent of Article 25(1) of the MTC should specify, at a minimum:
· the tax period(s) concerned;
· the nature of the action giving rise, or expected to give rise, to taxation not in accordance with the DTA; and
· the full names and addresses of the parties to which the MAP relates.
In order for a MAP request to be considered a valid request by Tax Administration under the EU Arbitration Convention, the MAP request submitted to the Competent Authority should specify, at a minimum:
· the identification of the taxpayer to which the MAP relates and the other parties to the relevant transactions;
· the tax period(s) concerned;
· details of the relevant facts and circumstances of the case;
· copies of any tax assessment notices, tax audit reports or equivalent documents leading to the alleged double taxation;
· details of any appeals and litigations initiated by the taxpayer or other parties to the relevant transactions; and
· an explanation by the taxpayer of why it considers that the principles of the EU Arbitration Convention have not been observed.
In accordance with the Council Directive 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:
· 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 Council 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:
i. an explanation of why the affected person considers that there is a question in dispute;
ii. 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;
iii. 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;
iv. 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;
v. 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 with regard to the question in dispute where relevant;
vi. 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) and an express commitment by the affected person that he will abide by the provisions of Article 16(5) of the Council Directive, if applicable;
· any specific additional information requested by the competent authorities that is considered necessary to undertake the substantive consideration of the particular case.
The taxpayer must also undertake to respond as completely and quickly as possible to requests by the Competent Authority for further information.
Where the MAP request, either under Article 25(1) of the MTC or Article 6(1) of the EU Arbitration Convention, or Article 3(1) Council Directive, does not contain this minimum amount of information, it will not be regarded as a MAP request by Tax Administration, i.e. it will not be regarded as submitted for the purpose of satisfying the time limit requirements (refer to section 2.1.1 above) in the relevant DTA or the EU Arbitration Convention or the Council Directive.
2.2. Complete MAP request
While a MAP request will be regarded as presented for time limit purposes where the information set out in section 2.1.2 above has been provided, Tax Administration will not commence the MAP process until a complete request for MAP assistance is received.
In order for a MAP request to be considered complete, taxpayers must provide the relevant information outlined in Appendix 2.
2.2.1. Start date/initiation of a MAP request
The receipt of the information outlined in Appendix 2 will determine the start date for a MAP request under a DTA. This start date is relevant for the purposes of computing the time taken to resolve a MAP request.
For the purpose of determining the starting point of the two year period under Article 7(1) of the EU Arbitration Convention, a MAP request will not be regarded as initiated until all of the relevant information requested in Appendix 2 of this guideline has been provided. Taxpayers are advised to consult the Revised Code of Conduct for the Effective Implementation of the Arbitration Convention for further information.
Article 4 (1) of the Council Directive prescribes that where the competent authorities of the Member States concerned accept a complaint, which contains all of the relevant information requested in Appendix 2, they shall endeavour to resolve the question in dispute by mutual agreement within 2 years, starting from the last notification of a decision of one of the Member States on the acceptance of the complaint.
2.2.2. Analysis of a MAP request and taxpayer role
As Tax Administration begins the detailed analysis of the MAP request, it is likely that there will be further information requests.
Taxpayers are expected to cooperate fully with Tax Administration by providing complete and accurate information without delay when requested. Without proper information and documentation, Tax Administration may be unable to resolve disputes.
MAP discussions between Tax Administration and the other Competent Authority are a government-to-government process. Taxpayer involvement in the MAP is generally limited to presenting its views to both Competent Authorities and providing the relevant information. Taxpayers are not involved in the actual discussions between the Competent Authorities. However, where appropriate, taxpayers may be invited to make a presentation before the Competent Authorities to ensure a common understanding of the facts of a particular case.
Throughout the MAP process, the taxpayer should ensure that each tax administration is provided with the same information at the same time. This applies to any information submitted by the taxpayer to either tax administration as part of the MAP process.
Croatian Tax Administration will keep the taxpayer informed of the status of their MAP request on an on-going basis.
The information submitted to Tax Administration in connection with a MAP request will be treated as confidential in accordance with the provisions of the General Tax Act (“GTA”), provisions of the relevant DTA, provisions of the Code of Conduct Code of Conduct for the effective implementation of the Arbitration Convention and provisions of the Council Directive.
The exchange of information between Croatian Tax Administration and the Competent Authority of the treaty partner country in relation to a MAP shall be carried out in accordance with the provisions of the relevant DTA. Information exchanged under Croatian DTAs is confidential and may only be used and disclosed in accordance with the provisions of the treaty.
Due respect will also be given to the confidentiality of government-to-government communication as set out in the preamble to the Revised Code of Conduct for the effective implementation of the Arbitration Convention.
Article 3(4) of the Council Directive prescribes that national laws regarding the protection of information and the protection of trade, business, industrial or professional secret or trade processes shall apply and Article 13 prescribes that the independent persons of standing or any other member shall be subject to obligations of professional secrecy under the national legislation of each of the Member States concerned in relation to information they receive in their capacity as members an Advisory Commission or Alternative Dispute Resolution Commission.
2.4. Factors to be considered in determining whether to accept a MAP request
The factors which Tax Administration will consider in determining whether to accept requests for MAP assistance include:
· There is a DTA in place between Croatia and the foreign jurisdiction which contains the appropriate enabling provision, and/or both countries are signatories to the EU Arbitration Convention and/or both countries apply Council Directive; and
· The actions of one or both countries result or may result in taxation not in accordance with the provisions of the DTA and/or the provisions of Article 4 of the EU Arbitration Convention may not have been observed; and
· The Competent Authority receives a valid MAP request within the time limit specified in the applicable DTA and/or the time limit specified in Article 6 of the EU Arbitration Convention and/or the time limit specified in Article 3 Council Directive (refer to section 2.1 above); and
· The issue or objection raised by the taxpayer appears to be justified/well founded.
Croatian tax Administration will notify the taxpayer in writing, where possible, within 30 days of receipt of the taxpayer’s MAP request, whether their request has been accepted or rejected. Tax Administration will provide the taxpayer with the reasons for its decision where a request is rejected.
2.5. Stages of the MAP Process
2.5.1. First stage – unilateral
For MAP requests where Croatia is the jurisdiction raising the adjustment and a request is made to the Croatian Competent Authority under the MAP article of a DTA, the EU Arbitration Convention and/or Council Directive, the Croatian Competent Authority will first, if the request appears to be justified/well founded, attempt to resolve the matter unilaterally, without consulting the other Competent Authority.
If the Croatian Competent Authority is not itself able to arrive at a satisfactory solution, it will contact the Competent Authority of the other jurisdiction to set in motion the second bilateral stage of the MAP process.
2.5.2. Second stage - bilateral
During the second, bilateral stage of the MAP process Croatian Competent Authority will endeavour to resolve the matter by mutual agreement with the Competent Authority of the other jurisdiction involved.
It is important to note that paragraph 2 of Article 25 of the MTC requires both Competent Authorities to negotiate with a view to the avoidance of double taxation. However, in the absence of mandatory binding arbitration there is no guarantee that the case will be successfully resolved.
2.6. Interaction with domestic remedies
A taxpayer may request MAP assistance irrespective of the remedies provided by Croatian domestic law.
A taxpayer can request MAP assistance from the Croatian Competent Authority in situations where a decision has been rendered by Croatian Independent Sector for Second - Instance Administrative Procedure or Croatian Administrative Court. Taxpayer may submit a request for MAP assistance while judicial or administrative proceedings are ongoing, and if taxpayer proceed with judicial or administrative proceedings the Competent Authority will delay the MAP process pending the outcome of the administrative or judicial proceedings.
If the Competent Authorities cannot reach agreement through the MAP process or if the taxpayer rejects the agreement between the Competent Authorities, the taxpayer can then pursue any available domestic administrative or judicial remedies.
2.7. Other relevant guidance
Relief from collections, interest and penalties - under Croatian domestic legislation, there is no suspension of tax collection during the MAP process. Where applicable, interest and penalties will apply in accordance with GTA.
Treaty anti-abuse and domestic anti-abuse provisions - Where issues arise relating to the application of treaty anti-abuse provisions or the application of domestic anti-abuse provisions, Croatia will, on the request of the taxpayer, engage in consultation with the Competent Authority of the other Contracting State.
However, taxpayers should be aware that while Tax Administration will engage with the tax authority of the other relevant jurisdiction in relation to MAP requests which concern the application of treaty and/or domestic anti-abuse provisions, any claim of taxation not in accordance with the provisions of the convention may not necessarily be resolved and any double taxation may not be eliminated.
Audit settlement - Audit settlement agreements between tax authorities and taxpayers do not preclude access to MAP.
Multiple years - Taxpayers may submit MAP requests that span multiple years, subject to the time limit in the relevant DTA.
Multilateral MAPs - Where a MAP issue involves more than two tax jurisdictions, Tax Administration will consider entering into a series of bilateral MAPs as a way of dealing with such multilateral situations. Tax administration will also consider requests by the taxpayer to conduct multilateral meetings with the other tax administrations, subject to the terms of the relevant DTAs and the agreement of the other tax administrations.
Absence of Article 9(2) in a DTA - Economic double taxation can arise as a result of the inclusion in the profits of an enterprise of one Contracting State, profits on which an enterprise of the other Contracting State has been charged to tax in that other State, under the equivalent of Article 9(1) of the MTC. Article 9(2) of the MTC provides for a correlative adjustment to be made to relieve the economic double taxation that could otherwise arise. Where a DTA does not include the equivalent of Article 9(2) of the MTC, Tax Administration regards such economic double taxation as being implicitly within the scope of the DTA by virtue of the inclusion of Article 9(1) and accordingly, Tax Administration is willing to consider a request in such cases for MAP or correlative adjustment.
3. Resolution of a MAP request
There are a number of potential outcomes in a MAP case, including:
· unilateral relief (refer to section 2.5.1 above);
· Competent Authority agreement for full or partial elimination of double taxation;
· no Competent Authority agreement is reached, including agreement to disagree;
· MAP request withdrawn by the taxpayer.
In line with BEPS Action 14, Tax Administration is committed to seeking to resolve MAP cases within an average timeframe of 24 months of receipt of the complete MAP request. However, this is dependent on a number of factors such as the complexity of the case, the co-operation of the taxpayer and the number of rounds of negotiations required.
3.1. Competent Authority agreement has been reached
Once a mutual agreement has been reached between Croatian Tax Administration and the other Competent Authority, Tax Administration will notify the taxpayer in writing of the agreed outcome, where possible within 30 days of the Competent Authority meeting. Tax Administration will request that the taxpayer confirm in writing whether it accepts the mutual agreement within 30 days of receipt of the letter from Tax Administration.
If the taxpayer rejects the mutual agreement reached between the Competent Authorities, it can withdraw from the MAP process and pursue any available domestic remedies.
3.1.1. Implementing agreement
If the taxpayer confirms in writing its acceptance of the mutual agreement, Tax Administration will give effect to the mutual agreement and seek to ensure its implementation without delay. In cases where a refund is due to the taxpayer, the taxpayer should contact its local tax District to begin the process of obtaining the refund. The taxpayer will be required to submit revised tax computations for the affected accounting periods to Tax Administration.
3.2. Competent Authority agreement has not been reached
In the event that Tax Administration is unable to reach agreement with the Competent Authority of the foreign tax administration and in the absence of mandatory binding arbitration, Tax Administration will notify the taxpayer in writing, where possible within 30 days of the Competent Authority meeting, setting out why agreement could not be reached. Except for cases involving arbitration (refer to section 3.2.1 below), Tax Administration is not obliged to engage in further discussions with the other Competent Authority where Tax Administration or the other Competent Authority believes that agreement cannot be reached.
The competent authorities will endeavour to resolve cases with the objective of eliminating double taxation. However, it may not always be possible for the Competent Authorities to reach agreement, in which case arbitration may be available under the EU Arbitration Convention, or the relevant DTA or Council Directive.
3.2.1.1. MAP request submitted under the EU Arbitration Convention
Where taxpayers have submitted a valid claim under the EU Arbitration Convention, the Competent Authorities have two years to reach agreement on the case. The two year period starts on the later of the following dates:
i. the date of the tax assessment notice, i.e. a final decision of the tax administration on the additional income, or equivalent;
ii. the date on which the Competent Authority receives the request and the minimum information as stated under Section 7.6(a) of the Revised Code of Conduct for the effective implementation of the Arbitration Convention.
If agreement is not reached within this timeframe, an advisory commission (arbitration panel) is established to review the case (unless both Competent Authorities by mutual agreement and with the agreement of the taxpayer(s) concerned waive the two year time limit). Both Competent Authorities agree on the composition of the advisory commission. The advisory commission will deliver its decision not more than 6 months after the date the matter was referred to it. Both Competent Authorities must then act within 6 months in accordance with the decision of the advisory commission unless both Competent Authorities reach an alternative agreement to eliminate double taxation. If the Competent Authorities do not reach an alternative agreement within 6 months of the advisory commission’s decision, they will be obliged to implement the advisory commission’s decision.
3.2.1.2. MAP request submitted under a DTA with an arbitration provision
MAP arbitration provisions are currently included in the two of Croatian DTAs (with Italy and the Netherlands), but initiation of arbitration is on a voluntary basis ie arbitration is not mandatory.
Obligatory and binding arbitration is, as a special chapter (Chapter VI), also contained in the Multilateral Instrument, but Croatia does not intend to adopt this provision by ratifying the Multilateral Instrument. Taxpayers should consult the relevant DTA and the relevant MLI provisions (following ratification by both treaty partners) when making a MAP request.
3.2.1.3. MAP request submitted under a Council Directive
Where the competent authorities of the Member States concerned accept a complaint, they shall endeavour to resolve the question in dispute by mutual agreement within 2 years, starting from the last notification of a decision of one of the Member States on the acceptance of the complaint.
The period of 2 years referred to in the first subparagraph may be extended by up to 1 year at the request of a competent authority of a Member State concerned to all of the other competent authorities of the Member States concerned, if the requesting competent authority provides written justification.
Where the competent authorities of the Member States concerned have not reached an agreement on how to resolve the question in dispute within the period provided, upon a request made by the affected person to the competent authorities of the Member States concerned, an advisory commission (an ‘Advisory Commission’) shall be set up by such competent authorities where:
i. the complaint submitted by such affected person was rejected by at least one, but not all of the competent authorities of Member States concerned; or
ii. the competent authorities of the Member States concerned had accepted the complaint that was submitted by the affected person but failed to reach an agreement on how to resolve the question in dispute by mutual agreement within the time limit provided.
Taxpayer may only make such a request if, in accordance with any applicable national rules against a rejection no appeal can be made; no appeal is pending; or the affected person has formally renounced his right of appeal.
The Advisory Commission set up in the case of point (i.) shall adopt a decision on the acceptance of the complaint within 6 months from the date of its establishment. It shall notify the competent authorities of its decision within 30 days of the adoption thereof and the mutual agreement procedure shall be initiated at the request of one of the competent authorities. The competent authority concerned shall notify the Advisory Commission, the other competent authorities concerned and the affected person of that request. Where none of the competent authorities has requested initiation of the mutual agreement procedure within 60 days of the date of the notification of the decision of the Advisory Commission, the Advisory Commission shall provide an opinion on how to resolve the question in dispute. In the case of point (ii.) the Advisory Commission shall deliver an opinion on how to resolve the question in dispute.
If an Advisory Commission is not set up within the period provided Member States shall provide that the relevant affected person may apply to a competent court or to any other body or person designated in their national law for the carrying out of such function (national appointing body) to set up the Advisory Commission.
The competent authorities of the Member States concerned may agree to set up an alternative dispute resolution commission (an ‘Alternative Dispute Resolution Commission’) instead of an Advisory Commission to deliver an opinion on how to resolve the question in dispute. The competent authorities of the Member States may also agree to set up an Alternative Dispute Resolution Commission in the form of a committee that is of a permanent nature (a ‘Standing Committee’). An Alternative Dispute Resolution Commission may apply, where appropriate, any dispute resolution processes or technique to solve the question in dispute in a binding manner, including the ‘final offer’ arbitration process (otherwise known as ‘last best offer’ arbitration).
An Advisory Commission or Alternative Dispute Resolution Commission shall deliver its opinion to the competent authorities of the Member States concerned no later than 6 months after the date on which it was set up (where the Advisory Commission or Alternative Dispute Resolution Commission considers that the question in dispute is such that it would need more than 6 months to deliver an opinion, this period may be extended by 3 months) and the competent authorities concerned shall agree on how to resolve the question in dispute within 6 months of the notification of the opinion of the Advisory Commission or Alternative Dispute Resolution Commission. The competent authorities may take a decision which deviates from the opinion of the Advisory Commission or Alternative Dispute Resolution Commission. However, if they fail to reach an agreement as to how to resolve the question in dispute, they shall be bound by that opinion.
3.3 MAP request withdrawn by the taxpayer
Where a taxpayer wishes to withdraw a MAP request the taxpayer is required to provide the Competent Authority of the Contracting state of which he is a resident (to which it submitted the MAP request) with a notification, in writing, of the withdrawal of its MAP request, without delay. This notification should include the reason for the withdrawal (for example resolution of the issue through remedies provided by the domestic law of a Contracting State).
