A request for mutual agreement and arbitration procedure between Spain and Germany was denied due to highly punishable violation of tax regulations committed by the taxpayer.
The mutual agreement procedure according to the EU Arbitration Convention is of a mandatory nature and therefore leads to the elimination of double taxation if the requirements are met.
However, if it is determined through legal or administrative proceedings that one of the companies involved has committed a highly punishable violation of tax regulations that result in a profit adjustment, then there is no obligation to carry out the mutual agreement and arbitration proceedings. Rather, the competent authority then has to decide on the implementation of the procedure at its due discretion.
When assessing whether there has been a serious punishable violation, the person responsible for the company must be taken into account. But whether this person was actually punished for the violation of tax regulations is not decisive. The judicial determination of a criminal or fined violation of the law by this person is sufficient, which, viewed abstractly, can lead to a punishment.
The decision to carry out the procedure is also at the dutiful discretion of the competent authority even if the tax adjustment and the criminally determined violation of the tax regulations with regard to the tax periods and the tax amounts do not fully match.
The Bundesfinanzhof issued a decision in favor of the tax authorities.Sep 25 2019 IR 82-17 Bundesfinanzhof