How Final are Arbitration Decisions?

How Final are Arbitration Decisions?
Prof. Dr. Alexander Rust, LL.M.
Institut für Österreichisches und Internationales Steuerrecht

www.wu.ac.at/taxlaw
1
Contracting States
Art. 25(5) OECD MC:
The arbitration decision shall be binding on
both Contracting States unless a person
directly affected by the case does not accept the
mutual agreement that implements the
arbitration decision.
Institut für Österreichisches und Internationales Steuerrecht
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2
Contracting States
Art. 25B(5) UN MC and OECD MC Comm. on
Art. 25 par. 84:
=> More flexibility
The Competent Authorities may agree on a
different solution within six months after the
decision has been communicated to them.
Institut für Österreichisches und Internationales Steuerrecht
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3
Contracting States
Art. 12(1) EU Arbitration Convention:
Opinion of the advisory committee is not
binding. However, the Competent Authorities
have to follow the opinion if they fail to reach
agreement within 6 months after the opinion was
delivered.
Institut für Österreichisches und Internationales Steuerrecht

www.wu.ac.at/taxlaw
4
Taxpayer
Taxpayer is not bound by the arbitration
decision.
Taxpayer may either accept the agreement
implementing the arbitration decision which
requires abandoning any remaining domestic
legal remedies or reject the agreement to
pursue those domestic legal remedies.
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5
Domestic Courts
Jurisdiction?
Taxpayer brings an action against a Contracting
State to implement the arbitration decision (or to
implement the mutual agreement). Contracting
State argues that arbitration decision is void.
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Domestic Courts
Jurisdiction?
Both Contracting States implement the mutual
agreement and change the tax assessment.
Taxpayer brings an action against the
reassessment in one Contracting State.
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Domestic Courts
Legal remedies possible?
 Taxpayer only gave up legal remedies against
the original assessment. He still might be
entitled to go against the reassessment.
Gravamen?
 Reassessment might lead to a higher tax
liability. (Other Contracting State might have
given up its tax claim.)
Institut für Österreichisches und Internationales Steuerrecht

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8
Effect of domestic court
decision
Par. 18 Sample Mutual Agreement on Arbitration:
 The arbitration decision shall be final, unless that
decision is found to be unenforceable by the
courts of one of the Contracting States…
 If a decision is found to be unenforceable…, the
request for arbitration shall be considered not to
have been made and the arbitration process shall
be considered not to have taken place.
Institut für Österreichisches und Internationales Steuerrecht
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9
Domestic Courts
 Challenging the arbitration decision in front of
domestic courts is not the ideal solution.
 International body would be better suited to
analyze the validity of an arbitration decision.
Institut für Österreichisches und Internationales Steuerrecht

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10
Who should decide?
 Same arbitral tribunal?
 Nemo iudex in sua causa
 Consent of winning Competent Authority?
 Prior consent?
 Art. 52 ICSID Convention as an example?
 Ad hoc committee of 3 person. The committee shall
have the authority to annul the award or any part
thereof on any of the grounds set forth in Art. 52(1).
 Explicit rule needed.
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Jurisdiction of ICJ
Art. 36(1) ICJ Statute:
The jurisdiction of the Court comprises all cases
which the parties refer to it and all matters
specifically provided for in the Charter of the
United Nations or in treaties and conventions
in force.
Institut für Österreichisches und Internationales Steuerrecht
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ICJ of 18 November 1960
Art. 36(1) ICJ Statute:
Arbitral Award made by the King of Spain
 Determination of the frontier between Honduras
and Nicaragua on 23 December 1906
 Designation of the King of Spain as arbitrator
 Treaty provided that each state elects one
representative plus member of the diplomatic corps of
Guatemala or any foreign or Central American public
figure or submitted to the government of Spain.
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Jurisdiction of ICJ
Art. 36(2) ICJ Statute:
The states parties to the present Statute may at
any time declare that they recognize as
compulsory ipso facto and without special
agreement, in relation to any other state
accepting the same obligation, the jurisdiction of
the Court in all legal disputes concerning:
a)…
b) any question of international law
Institut für Österreichisches und Internationales Steuerrecht
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ICJ of 2 March 1990
Art. 36(2) ICJ Statute:
Arbitral Award Guinea-Bissau v. Senegal
 Boundary between the states
 Manifest error? One judge attached a declaration to the
award stating the opposite of what he had decided.
 “The two declarations made by the Parties
under Art. 36(2) of the Statute and invoked by
the Applicant do appear, prima facie, to afford a
basis of jurisdiction.”
Institut für Österreichisches und Internationales Steuerrecht
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15
Particular Treaties
Art. 25(5) DTC Austria/Germany 2000
 The Competent Authorities are obliged to refer
the case to arbitration proceedings before the
European Court of Justice pursuant to Art. 273
TFEU.
Art. 41(5) DTC Germany/Sweden 1992
 Reference to the European Convention on the
Peaceful Settlement of Disputes => ICJ
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16
Grounds for Nullity
Balance between:
 Legal certainty: Arbitration decision should
definitely settle the dispute
 Correctness: Arbitration decision may be
wrong and may damage the image of
arbitration proceedings as a whole.
Institut für Österreichisches und Internationales Steuerrecht
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17
Grounds for Nullity
Par. 18 Sample Mutual Agreement on Arbitration:
 The arbitration decision shall be final, unless
that decision is found to be unenforceable by
the courts of one of the Contracting States
because of a violation of paragraph 5 of
Article 25 or of any procedural rule
included in the Terms of Reference or in
this agreement that may reasonably have
affected the decision.
Institut für Österreichisches und Internationales Steuerrecht

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18
Grounds for Nullity
 Excess of Power / Lack of Jurisdiction
 Arbiter nihil extra compromissum facere potest.
 Another tax year / another taxpayer
Essential or Manifest Error (-)
Corruption of an arbiter
Arbitral Tribunal was not properly constituted
Serious departure from a fundamental rule of
procedure (ICSID)
 Award failed to state the reasons on which it is
based (ICSID)




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19
Proposals
 ICSID: Include an arbitral tribunal in the
Sample Mutual Agreement on Arbitration which
is entitled to examine the validity of the
arbitration decision.
 Better than domestic court decisions.
 Time limits (ICSID 120 days)
 State the reasons which lead to the nullity of
the arbitral award.
Institut für Österreichisches und Internationales Steuerrecht

www.wu.ac.at/taxlaw
20
How final are arbitration
decisions?
INSTITUT FÜR ÖSTERREICHISCHES UND
INTERNATIONALES STEUERRECHT
Welthandelsplatz 1, Gebäude D3, 1020 Wien
Österreich
Univ.-Prof. Dr. Alexander Rust, LL.M.
T +43-1-313 36-4772
F +43-1-313 36- 90 730
[email protected]
www.wu.ac.at/taxlaw
Institut für Österreichisches und Internationales Steuerrecht

www.wu.ac.at/taxlaw
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