The Arbitration Convention entered into effect on January 1, 1995. Its aim is to eliminate double taxation in the event that tax authorities adjust profits associated enterprises realize because their mutual transactions are not at arm’s length. Such adjustments may result in double taxation if one Member State adjusts a company’s profits upwards, while another Member State refuses to permit a corresponding downward adjustment to be made to the relevant associated enterprise’s profits.


If an adjustment is likely to result in double taxation, an enterprise may present its case to the competent authority in the Member State where it is established. This must be done within three years from the date of the first tax assessment that resulted in double taxation. The enterprise and the competent authority must inform the other Member States involved that a case has been presented. The Member States involved then have two years to reach an agreement that eliminates the double taxation; if they fail to do so, they must set up an advisory commission that will deliver its opinion within six months. Afterwards, the relevant Member States have six months to make a mutual decision, which may deviate from the commission’s opinion, as long as it eliminates the double taxation. If they fail to reach an agreement within those six months, they are obligated to act in accordance with the commission’s opinion.

Code of conduct

In order to more uniformly implement specific elements of the Arbitration Convention, such as certain time limits, a code of conduct for that implementation was adopted in 2004.

Scope of application

The Arbitration Convention also applies to the ten new Member States that acceded to the EU on May 1, 2004, as well as to Bulgaria and Romania, which acceded on January 1, 2007.