Tax Omnibus reform of the Dispute Resolution Mechanism Directive

While much of the attention surrounding the European Commission’s Tax Omnibus package has focused on the simplification of withholding tax procedures, anti-avoidance rules and cross-border reorganisations, the proposed amendments to the EU Tax Dispute Resolution Mechanisms Directive (DRM Directive) are equally important for businesses operating across multiple EU jurisdictions.

The current framework

Taxpayers operating in multiple Member States may face practical difficulties in resolving tax disputes arising from the allocation of taxing rights between the jurisdictions involved. Transfer pricing adjustments, permanent establishment disputes and divergent interpretations of tax treaties can result in juridical or economic double taxation, creating additional tax burdens for taxpayers.

The DRM Directive establishes a structured framework for resolving disputes between Member States arising from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and, where applicable, capital.

Although the current Directive was a significant step forward in improving tax certainty, practical experience has revealed a number of challenges. Businesses have encountered procedural complexity at the complaint stage, divergent interpretations among Member States regarding admissibility requirements and uncertainty regarding the interaction between the DRM and local court actions. These issues limit the accessibility and effectiveness of the framework and create unnecessary administrative burdens for taxpayers.

Against this background, the European Commission has proposed a series of targeted amendments designed to simplify access to dispute resolution procedures, reduce administrative burdens and improve the overall effectiveness of the existing framework.

Simplification for taxpayers affected by the same question in dispute

The proposal provides greater flexibility in cases involving multiple affected persons, by allowing complaints to be filed individually or, where appropriate, on behalf of several taxpayers. Each taxpayer directly affected by the question in dispute would be expressly recognised as an affected person for the purposes of the Directive and therefore entitled to access the dispute resolution mechanism.

At the same time, Member States would be required to allow individual complaints or a single complaint covering all affected persons.

For multinational groups involved in transfer pricing or other multi-entity disputes, these measures should simplify procedural requirements and reduce administrative complexity.

Replacement of the requirement for “simultaneous” submission of complaints

One of the proposed amendments with practical implications concerns the current requirement for complaints to be submitted “simultaneously” to all relevant competent authorities.

To address this issue, the proposal replaces the requirement for simultaneous submission with a 30-calendar-day period within which the complaint must be received by all relevant competent authorities.

Clarifying the grounds for rejecting a complaint

Another important aspect of the proposal is the clarification of the circumstances in which competent authorities may reject a complaint.

Under the proposed rules, the grounds for rejection would be expressly defined and would include, among others, the absence of a question in dispute, failure to provide the required information and non-compliance with the applicable filing deadline, language requirements or information consistency requirements.

For taxpayers, these measures could reduce the risk of well-founded complaints being excluded from the dispute resolution process due to procedural deficiencies.

Greater transparency regarding the conclusion of the Mutual Agreement Procedure

The proposal seeks to accelerate the transition from the mutual agreement procedure to the dispute resolution phase. Where all competent authorities agree that no agreement can be reached, they would be required to inform the affected taxpayer without delay and provide the general reasons for that conclusion, rather than waiting for the expiry of the prescribed period for the mutual agreement procedure.

Strengthening the role of dispute resolution commissions

The proposal expands the role of dispute resolution commissions by allowing them to become involved in disagreements concerning the admissibility of complaints. Currently, these commissions examine the merits of tax disputes, while the competent authorities of the Member States concerned determine whether a complaint meets the applicable procedural and formal requirements. The proposed amendment would provide taxpayers with an additional safeguard where competent authorities fail to reach an agreement on the admissibility of a complaint and could also contribute to a more consistent application of procedural requirements across Member States.

Improved coordination with other procedures

The proposal also clarifies how the DRM interacts with other dispute resolution procedures.

Under the proposed framework, other dispute resolution procedures would, as a general rule, be suspended upon the submission of a complaint under the DRM Directive and would only be terminated once the complaint has been formally accepted by all relevant competent authorities. The purpose of this amendment is to ensure that taxpayers do not lose protection against double taxation while also avoiding unnecessary overlaps between parallel proceedings.

Although the Mutual Agreement Procedure (MAP) remains relatively unfamiliar to taxpayers in Romania, it is becoming an increasingly relevant mechanism for resolving cross-border tax disputes and eliminating double taxation within the EU. In practice, many taxpayers undergoing tax audits, including those involving intra-group services and transfer pricing adjustments, are not always aware of the possibility of using MAP to eliminate double taxation. At EU level, however, MAP is already an important and widely used mechanism for resolving tax disputes, with transfer pricing cases accounting for more than 50% of the total caseload.

The procedural clarifications and improvements proposed at EU level are expected to facilitate taxpayers' access to this mechanism, enhance the efficiency of the dispute resolution process and strengthen legal certainty.

For companies facing transfer pricing adjustments, disputes concerning the existence of a permanent establishment or the attribution of profits to such an establishment, or other situations involving double taxation, timely access to an effective dispute resolution mechanism can be just as important as the substantive tax rules themselves. By clarifying complaint submission requirements, strengthening procedural safeguards and facilitating a faster transition to subsequent stages of the dispute resolution process, the proposal could significantly contribute to enhancing tax certainty across the European Union.

The amendments remain subject to unanimous approval by the Member States and may evolve during the legislative process. By simplifying access to dispute resolution mechanisms and strengthening procedural safeguards, the proposal seeks to ensure that situations of double taxation can be addressed more efficiently throughout the Internal Market.