Mutual agreement procedure between tax authorities
When two States tax the same income and neither gives way: the treaty mutual agreement procedure, its time limits and its outcome.
Contents
The situation
A transfer pricing adjustment in France, with the other State refusing the corresponding correction. An employee whose income each State claims. A permanent establishment recognised on one side of the border and denied on the other.
In all of these, winning before the French court solves only half the problem: the other State is not bound by that judgment.
What the rules say
| Stage | What to know |
|---|---|
| Request | addressed to the competent authority, within the period provided by the treaty from the notification of the measure giving rise to double taxation |
| Handling | the two authorities endeavour to reach agreement; the taxpayer is informed but is not a party to the negotiation |
| Arbitration | provided by some treaties and, between Member States, by the European dispute resolution mechanism |
| Relationship with litigation | a mutual agreement request does not suspend domestic claim deadlines: both routes run together |
The decisive point is the deadline. It is short, it runs from notification, and domestic appeals do not extend it.
What the firm does with those rules
The work starts with a two-column calendar: what must be filed in France to preserve the domestic claim, and what must be lodged with the competent authority to open the mutual agreement route. Missing the second column means giving up the only avenue capable of making the other State move.
It then means preparing the file in the language of the negotiation: statement of facts, chronology, the positions of both administrations, and a precise quantification of the double taxation. A poorly documented request is handled slowly, and the timescales are already long.
Finally, it means following the procedure and, if no agreement comes, requesting arbitration where the applicable instrument provides for it.
Frequently asked questions
Must you choose between the mutual agreement procedure and litigation?
No. Both run in parallel, and that is the recommended course: one preserves the domestic deadline, only the other can obtain relief in the other State.
How long does it take?
From several months to several years depending on the authorities involved. The European mechanism has introduced framed deadlines and an arbitration phase.
Does the taxpayer take part in the discussions?
Not in the negotiation between authorities, but he is informed, asked for material, and must accept or refuse the final agreement.
Where is it most useful?
Transfer pricing, residence, permanent establishment, and the characterisation of cross-border employment income.
This article sets out a general framework and is no substitute for a review of your file: every situation has its own dates, figures and documents.