Double taxation disputes: what’s changing

Last week, the Australian Government finalised the first in a series of new agreements with foreign governments to improve the handling of double taxation disputes.

The Memorandum of Understanding (MOU) between Australia and Belgium deals with unresolved issues under the formal tax dispute resolution system (known as the mutual agreement procedure, or MAP). According to Australian authorities, the MOU with Belgium will provide greater certainty and clarity to individuals who have tax matters in both countries, especially those currently embroiled in a dispute or contemplating launching a resolution process.

How international tax treaties affect you

The Australian Taxation Office (ATO) describes the MOU as a ‘significant milestone’, because it’s the first of its kind under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. This is the new international agreement that entered into force in Australia in 2019. Put simply, the Convention is designed to drag existing bilateral tax treaties into the 21st century.

What does this mean for you? If you’ve been unlucky enough to experience a double taxation dispute regarding your Australian tax return or tax in your country of residence, you may know that Australian citizens can invoke the relevant tax treaty (where applicable), requesting a dispute resolution under the MAP. If this dispute resolution process drags on, Australians need to move onto formal arbitration. And that’s where the new MOUs come in.

Beyond Belgium: Who’s up next?

The agreement with Belgium is just the first in a series of 16 MOUs that Australian authorities are currently negotiating with foreign governments, including the United Kingdom, New Zealand and Canada. The new MOUs will set out the steps for ‘mandatory binding arbitration’ in cases where Australian citizens believe they’ve fallen victim to double taxation, but the dispute resolution process remains unresolved after a set period of time (usually two years).

Most of the new MOUs will rely on a ‘final offer’ model of arbitration. This means that an independent arbitration panel will consider the proposed solution submitted by the two countries and will choose (by a vote) one of them as the final arbitration decision. Australian tax officials think this is a big step forward – here’s hoping they’re right!