On 12 September 2017, the European Court of Justice decided for the first time as an arbitral tribunal on a tax dispute between Austria and Germany (case C-648/15). The basis for this decision was the arbitration clause contained in the double tax treaty concluded between Austria and Germany.
Art. 273 of the Treaty on the Functioning of the European Union (TFEU) provides that the ECJ shall have jurisdiction in any dispute between EU Member States related to the subject matter of the Treaty on the European Union or the TFEU, if the dispute is submitted to the ECJ under a special agreement between these EU Member States. Pursuant to art. 25(5) of the double tax treaty concluded between Austria and Germany (DTT), if a dispute cannot be settled within a period of three years under the mutual agreement procedure provided for in the DTT, then, upon request of the taxpayer involved, the ECJ acting as arbitral tribunal shall decide the case. To our knowledge, this is the only clause contained in a double tax treaty concluded by two EU Member States which provides for the ECJ as an arbitral tribunal based on art. 273 of the TFEU.
On 12 September 2017, the European Court of Justice (ECJ) decided the first dispute under this provision in favour of Austria. Even more importantly, the ECJ outlined the prerequisites for its jurisdiction as laid down in art. 273 of the TFEU. Pursuant thereto, the jurisdiction of the ECJ is subject to (i) the existence of a dispute between EU Member States, (ii) the dispute being related to the subject matter of the TFEU and the Treaty on European Union (TEU) and (iii) the submission of the dispute to the ECJ under a special agreement between the parties:
- In the case at hand, where the mutual agreement procedure provided for by the DTT was unsuccessful, the ECJ recognized a dispute between Austria and Germany.
- As regards the question whether the dispute was related to the subject matter of the TFEU and the TEU, the ECJ outlined the following: The purpose and effect of the conclusion between two EU Member States of a convention avoiding double taxation is to eliminate or mitigate certain consequences resulting from the uncoordinated exercise of their powers of taxation, which is, by its nature, capable of restricting, discouraging or rendering less attractive the exercise of the freedom of movement provided for in the TFEU. Thus, in light of the beneficial effect of the mitigation of double taxation on the functioning of the internal market, there is an objectively identifiable link of the dispute with the subject matter of the TFEU.
- Finally, the dispute was not submitted to the ECJ under an arbitration clause adopted specifically to resolve the dispute at hand, but rather pursuant to a general provision, namely art. 25(5) of the DTT. However, in light of the objective of art. 273 of the TFEU, the ECJ accepted its jurisdiction on the basis of an agreement on the referral to the ECJ of any potential dispute in predefined circumstances in a provision such as art. 25(5) of the DTT.