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Czech Republic: Dispute resolution under income tax treaties, transposing EU Directive

Czech Republic: Dispute resolution, income tax treaties

A bill on international cooperation in resolution of tax-related disputes in the EU has been submitted to the Chamber of Deputies.

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The bill is an action to transpose into Czech law an EU Directive on tax dispute resolution mechanisms in the EU. The EU Directive aims for efficient resolution of disputes arising from the interpretation of income tax treaties for the avoidance of double taxation on a national and international level.

Tax treaties typically contain a clause on dispute resolution by mutual agreement or the Arbitration Convention; however, such procedures are rather time-consuming, and their outcome uncertain. The EU Directive and, in turn, the Czech proposed legislation offer clear rules and provide new legal remedies to taxpayers.

Timing for dispute resolution

A main part of the EU Directive is a broadening of the scope of disputes to be subject to these rules. The measures would apply to any disputes arising from the interpretation of income tax treaties between EU Member States or the Arbitration Convention. The disputes would be resolved by a “harmonised procedure,” and concluded by a report on the final outcome.

For the parties to the proceedings, the bill stipulates specific time limits to complete each separate phase of the proceedings.

  • Taxpayers would initiate the harmonised procedure by filing an application no later than three years from the date when they learned of the measure leading to the “question of dispute.”
  • The authority competent to resolve the issue would decide on its admissibility and initiate the harmonised procedure within six months from receiving the application from the taxpayer.
  • The time limit for the competent authority to assess the matter and reach an agreement would be two years (subject once to a possible one-year extension).
  • If no agreement is reached, the question would be considered by an advisory authority, and these conclusions would have to be reflected by the competent authorities within six months.

Apart from setting clear and legally enforceable time limits, the bill would enhance the transparency of dispute resolutions by introducing a requirement that decisions must be published. The report of the outcome of the harmonised procedure could only be published with the consent of all parties, and upon the agreement of the competent authorities.

There is also an option to publish a summary report (in an anonymous format not containing taxpayers’ sensitive data) reflecting the main conclusions of the resolved dispute. Decisions would be sent to the European Commission for publication on its website.


Read an August 2019 report prepared by the KPMG member firm in the Czech Republic

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