Tax News

CCH (cch.taxgroup.com) reports:

For the first time, the Senate on December 14 approved income tax treaties that would require mandatory binding arbitration. The arbitration provisions were included in the U.S.-Belgium Income Tax Treaty and a protocol to the U.S.-Germany income tax treaty. Both the Bush administration and the U.S. business community support the binding arbitration process. Some senators on the Foreign Relations Committee initially had opposed it. Binding arbitration will come up again in 2008 in a new protocol with Canada. The provision is not yet part of Treasury's 2006 model income tax treaty.
The binding arbitration process takes effect automatically after two years if the countries' competent authorities cannot reach agreement. Each side picks an arbitrator, who then pick a third arbitrator. The panel must choose one side's offer or the other; it cannot compromise them. The panel's decision will not be precedent.
Oren Penn of PricewaterhouseCoopers told CCH that it is not intended that the provision will be used. The all-or-nothing nature of a decision is designed to encourage countries to come to an agreement.
By Brant Goldwyn, CCH News Staff