EU EU-Domstolen 2026-10-22 C-497/25

Opinion of Advocate General Laulhé Shaelou delivered on 22 October 2026 (C-497/25)

Provisional text

OPINION OF ADVOCATE GENERAL

LAULHÉ SHAELOU

delivered on 22 October 2026 (1)

Case C‑497/25

UAB ‘Maxima LT’

Valsts ieņēmumu dienests

(Request for a preliminary ruling from the Administratīvā rajona tiesa (District Administrative Court, Latvia)

( Reference for a preliminary ruling – Directive (EU) 2017/1852 – Tax dispute resolution mechanism – Dispute between two Member States over the interpretation and application of a bilateral tax agreement – Article 2(1)(c) – Concept of double taxation – Income exempt from tax in one Member State )

I. Introduction

1. It is a well-known fact that the uncoordinated exercise of sovereignty in matters of direct taxation (2) may lead to situations of double taxation. Forms of international double taxation arise in particular because most countries base their national taxation not only on domestic transactions, but also on extraterritorial factors. (3) To avoid the negative consequences that overlapping tax competences bring about, States often agree, by means of international tax agreements, to allocate their taxing rights in respect of the elements of income or capital falling within the scope of such agreements. That said, national authorities may adopt diverging positions about how those treaties should be interpreted and applied in specific cases, leading to disagreements.

2. Taking the view that such disagreements ‘can create serious tax obstacles for businesses operating across borders’, (4) and considering that the pre-existing solutions contained in international agreements were unsatisfactory, (5)the EU legislature adopted the DRM Directive. That directive sets out an enhanced procedural scheme for any disagreements arising therefrom to be tackled and ideally resolved. The present reference, submitted by the Administratīvā rajona tiesa (District Administrative Court, Latvia), provides the Court with an initial opportunity to interpret this instrument of EU law.

3. The facts having led to the present reference concern the taxation of income that a Netherlands company obtained from the sale of shares in several companies established in Latvia. Both the Republic of Latvia and the Kingdom of the Netherlands claimed taxing rights over that income and a disagreement arose between the relevant authorities in those Member States about the interpretation of the tax agreement in place between the two Member States. That said, while the income was effectively taxed in Latvia, it was ultimately exempt from tax in the Netherlands.

4. The seller took the view that the situation of double taxation was not resolved because a disagreement about the construction of the tax agreement persisted. That seller therefore requested the Latvian authorities to set up, in particular, an Advisory Commission which represents a specific stage of the dispute resolution mechanism governed by the DRM Directive. Pursuant to Article 16(7) of that directive, the obligation to set up that commission does not, however, arise where the matter ‘does not involve double taxation’. Based on that derogation and by reference to the tax exemption obtained in the Netherlands, the Latvian authorities rejected the request.

5. That decision is now being challenged before the referring court, which seeks clarification as to, on the one hand, whether the situation ‘involves double taxation’ and, on the other hand, the extent of the Latvian authorities’ obligation to set up an Advisory Commission.

6. At the Court’s request, the present Opinion focuses on the first aspect mentioned above to clarify whether a situation ‘involving double taxation’ within the meaning of the DRM Directive occurs when two Member States claim taxing rights over the same income (and a disagreement between them on the interpretation and application of the applicable tax agreement exists) but when de facto only one of the Member States has levied taxes on that income.

II. Legal framework

A. European Union law

7. Article 1 of the DRM Directive concerns the ‘Subject matter and scope’ of that directive and reads as follows:

‘This Directive lays down rules on a mechanism to resolve disputes between Member States when those disputes arise from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and, where applicable, capital. It also lays down the rights and obligations of the affected persons when such disputes arise. For the purposes of this Directive, the matter giving rise to such disputes is referred to as a “question in dispute”.’

8. Article 2 of that directive states:

‘1. For the purposes of this Directive, the following definitions apply:

…

(c) “double taxation” means the imposition by two or more Member States of taxes covered by an agreement or convention referred to in Article 1 in respect of the same taxable income or capital when it gives rise to either: (i) an additional tax charge; (ii) an increase in tax liabilities; or (iii) the cancellation or reduction of losses that could be used to offset taxable profits;

…’

9. Article 3 of the DRM Directive is entitled ‘Complaint’ and paragraph 1 thereof states that ‘any affected person shall be entitled to submit a complaint on a question in dispute to each of the competent authorities of each of the Member States concerned, requesting the resolution thereof. The complaint shall be submitted within 3 years from the receipt of the first notification of the action resulting in, or that will result in, the question in dispute …’

10. Article 4 of the DRM Directive concerns the ‘Mutual agreement procedure’. It reads as follows:

‘1. Where the competent authorities of the Member States concerned accept a complaint, they shall endeavour to resolve the question in dispute by mutual agreement within 2 years, starting from the last notification of a decision of one of the Member States on the acceptance of the complaint.

The period of 2 years referred to in the first subparagraph may be extended by up to 1 year at the request of a competent authority of a Member State concerned to all of the other competent authorities of the Member States concerned, if the requesting competent authority provides written justification.

…

3. Where the competent authorities of the Member States concerned have not reached an agreement on how to resolve the question in dispute within the period provided for in paragraph 1, the competent authority of each of the Member States concerned shall inform the affected person indicating the general reasons for the failure to reach agreement.’

11. Pursuant to Article 6 of the DRM Directive, entitled ‘Dispute resolution by the Advisory Commission’:

‘1. Upon a request made by the affected person to the competent authorities of the Member States concerned, an advisory commission (an “Advisory Commission”) shall be set up by such competent authorities … where:

…

(b) the competent authorities of the Member States concerned had accepted the complaint that was submitted by the affected person but failed to reach an agreement on how to resolve the question in dispute by mutual agreement within the time limit provided for in Article 4(1).

…’

12. Article 16(7) of the DRM Directive provides that ‘a Member State may deny access to the dispute resolution procedure under Article 6 on a case-by-case basis where a question in dispute does not involve double taxation. In such a case, the competent authority of the said Member State shall inform the affected person and the competent authorities of the other Member States concerned without delay.’

B. National law

13. It follows from the order for reference that, in Latvia, the DRM Directive has been transposed by the Likums ‘Par nodokļiem un nodevām’ (Law on Taxes and Duties) (Latvijas Vēstnesis No 26 of 18 February 1995) (as amended by the Law of 17 October 2019, in force since 23 October 2019; the ‘Law on Taxes and Duties’), Chapter XV, entitled ‘Resolution of disputes arising with the competent authorities of other Member States of the European Union in connection with the interpretation and application of international agreements that provide for the elimination of double taxation of income and capital.’

14. Pursuant to paragraph 2 of Article 119 of that law (‘General provisions relating to dispute resolution’), ‘for the purposes of this Chapter, double taxation means the imposition of taxes in Latvia and another European Union Member State in respect of one and the same taxable income or capital, if such taxes are subject to the application of international treaties which provide for the elimination of double taxation of income and capital and if such imposition results in at least one of the following conditions:

1. an additional tax charge;

2. an increase in tax liabilities;

3. the cancellation or reduction of losses that could be used to reduce taxable income.

…’

15. The referring court refers to the following provisions of that law that concern the filing of the complaint (Article 120(1) and (5) of the Law on Taxes and Duties); examination of the dispute under the mutual agreement procedure (Article 121(1) and (4) of the Law on Taxes and Duties); and establishment of an Advisory Commission (point 2 of Article 123(1) of the Law on Taxes and Duties).

16. Moreover, pursuant to Article 132(5) of the Law on Taxes and Duties, ‘the State Revenue Service may deny a taxpayer the right to use the dispute resolution procedure referred to in Article 123 of this Law if it finds, in the light of the circumstances of the particular case, that the dispute does not concern double taxation. In that event, the State Revenue Service shall immediately inform the taxpayer and the competent authorities of the European Union Member States concerned.’

17. The referring court also refers to point 2 of Article 5(1), and Article 5(2), of the Uzņēmumu ienākuma nodokļa likums (Law on Corporation Tax) (Latvijas Vēstnesis, 2017, No 156) (‘the Law on Corporation Tax’).

C. International law

18. On 14 March 1994, the Republic of Latvia and the Kingdom of the Netherlands concluded a convention for the avoidance of double taxation and the prevention of tax evasion, which governs, in particular, corporate income tax (‘the Convention’). (6)

19. Paragraph 2 of Article 6 of the Convention defines the term ‘immovable property’ as having ‘the meaning which it has under the law of the Contracting State in which the property in question is situated’ and gives an indicative list of the elements covered by that definition. (7)

20. Paragraph 1 of Article 13 of that convention provides that ‘gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.’

21. Pursuant to paragraph 4 of Article 13, ‘gains from the alienation of any property other than that referred to in paragraphs 1, 2, and 3, shall be taxable only in the Contracting State of which the alienator is a resident.’

III. Facts, national proceedings and the questions referred

22. UAB Maxima LT, a company established in Lithuania and the applicant in the main proceedings (‘the applicant’) is the legal successor of Lincoln Land Erste B.V., a company established in the Netherlands. The latter company sold its shares in 13 companies established in Latvia to a Latvian company, SIA MAXIMA Latvija, on 20 May 2020.

23. Since more than 50% of the value of the assets of 12 of the companies consisted of immovable properties situated in Latvia, the transaction was considered a sale of immovable property under Latvian law and tax was levied on the resulting income accordingly, on the recommendation of the Valsts ieņēmumu dienests (State Tax Administration, Latvia; ‘the VID’). (8) At the same time, the income at issue was considered by the Netherlands authorities to be subject to the tax competence of the Netherlands for the purpose of tax from corporate income (by a resident of the Netherlands).

24. Taking the view that the transaction at issue involved a risk of double taxation in Latvia and the Netherlands, the seller informed the VID, on 20 July 2020, that the matter had been submitted to the competent authority of the Netherlands.

25. The VID initiated, by decision of 8 March 2021, the mutual agreement procedure within the meaning of the DRM Directive. The position of the competent authorities of both Member States differed as to which provision of the Convention should apply to the income at issue. According to the VID, Latvia was entitled to collect the tax pursuant to paragraph 1 of Article 13 of the Convention because the transaction pertained to immovable property situated in Latvia. At the same time, the Netherlands authority considered that the income constituted a capital gain from ‘other property’ within the meaning of paragraph 4 of Article 13 of that convention, and that that gain was taxable only in the Contracting State of which the transferor was a resident, namely the Netherlands.

26. On 11 March 2024, the VID informed the applicant that no agreement had been reached within the applicable three-year period. It also stated that no documents or evidence of its taxation in the Netherlands had been received during the mutual agreement procedure.

27. In that respect, it follows from the order for reference that the income derived from the sale of shares at issue was recorded in the seller’s profit and loss account for the purpose of corporation tax for 2020. Nevertheless, that income was exempt from tax by application of the relevant conditions provided for by Netherlands law. (9)

28. On 22 April 2024, the applicant asked the VID to set up an Advisory Commission.

29. The VID dismissed that request by decision of 31 July 2024 by reference to the fact that the income from the sale of the shares was exempt from tax in the Netherlands and there was therefore no double taxation.

30. The applicant applied to the referring court for an order requiring the VID to set up an Advisory Commission. It refers to the fact that the transaction was subject to the Netherlands tax system, as was indicated, according to the applicant, by a representative of the Netherlands tax administration. Furthermore, it argues that, had the conditions under Netherlands law for the exemption from the tax not been met, the income would have been subject to corporate tax in both Latvia and the Netherlands. Since the mutual agreement procedure failed, it is the applicant’s view that the VID was required to set up an Advisory Commission pursuant to Article 123(1) of the Law on Taxes and Duties, because the wording of that provision does not entail any discretion. Moreover, the applicant considers that by rejecting its request, the VID restricted its rights guaranteed under EU law, in particular the free movement of capital (Article 63 TFEU), freedom of establishment (Article 49 TFEU) and its right to an effective remedy (Article 47 of the Charter of Fundamental Rights of the European Union; ‘the Charter’).

31. The VID opposes that claim, by reference, in essence, to the same reasons as those set out in point 29 above.

32. In those circumstances, the referring court decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) Must Article 6(1)(b) of [the DRM Directive] be interpreted as meaning that the competent authority of a Member State has an obligation to set up an [A]dvisory [C]ommission, upon … request by the affected person, where the competent authorities of the Member States concerned have accepted the complaint submitted by the affected person but have failed to reach an agreement on how to resolve the question in dispute by mutual agreement within the period laid down in Article 4(1) [of that directive]?

(2) Must the concept of “double taxation” as referred to in Article 2(1)(c) of [the DRM Directive] be interpreted as meaning that, in circumstances such as those of this case, double taxation is also present in the situation where the same income is subject to the tax systems of two Member States, even though that income benefits from a tax exemption in one of those Member States?

(3) If the answer to the second question referred for a preliminary ruling is in the negative, must Article 16(7) of [the DRM Directive] be interpreted as meaning that, in circumstances such as those of this case, it does not fall within the discretion of the competent authorities of the Member States to deny the affected person access to a dispute resolution [A]dvisory [C]ommission where the competent authorities of the Member States have failed to reach an agreement on the correct interpretation and application of the bilateral tax treaty, it being that agreement which in turn determines which Member State is entitled to tax the income?’

33. Written observations in the present proceedings were submitted by the applicant, the Latvian, Belgium, Spanish, French, Polish and Finnish Governments and the European Commission. No hearing was held.

IV. Analysis

34. The core issue raised by the present reference for a preliminary ruling is whether the authorities of a given Member State could lawfully reject a request presented by a taxpayer to set up an Advisory Commission within the meaning of the DRM Directive to address a disagreement between the tax authorities of two Member States about the interpretation of a tax agreement. Given that, pursuant to the DRM Directive, access to that commission can be denied where the situation ‘does not involve double taxation’, the referring court enquires (by the second question referred which, it should be recalled, is the only one addressed by the present Opinion) whether the concept of double taxation as defined in that directive covers a situation where the given income falls under the tax competences of two Member States but is exempt from tax in one of them.

35. In my analysis, I will conclude that that question should be answered in the negative, in accordance with the positions of all the governments having submitted observations in the present proceedings and in agreement with the view of the Commission. Before setting out the reasons on which I will rely (B), I will provide comments on the relevant regulatory background (A).

A. The elimination of double taxation and the DRM Directive

36. In order to place the examination of the second question referred in its proper context, I wish to make three sets of observations.

37. First, I recall that direct taxation primarily falls within the competence of the Member States although their action in that field has to comply with the general obligations stemming from EU law, in particular the fundamental freedoms guaranteed by the FEU Treaty (10) (as well as with the obligations defined in specific harmonising measures). In that context, the Court has repeatedly held that the disadvantages resulting from the exercise of parallel tax competences do not constitute restrictions prohibited by the FEU Treaty, in so far as such an exercise is not discriminatory. (11) Thus, to the extent that the given matter is not governed by any harmonising measure, the Member States retain the power to define, by treaty or unilaterally, the criteria for exercising their powers of taxation, particularly with a view to eliminating double taxation which they may do by applying, in particular, the criteria followed in international tax practice. (12)

38. Second, as already alluded to, double taxation is deemed undesirable due to its recognised ‘harmful effects on the exchange of goods and services and movements of capital, technology and persons’ and thus on ‘the development of economic relations between countries’. (13) Bilateral agreements providing for elimination of double taxation which, for that matter, appear in their vast majority to be based on the OECD or UN Models, are viewed as instrumental in mitigating the negative effects set out above. They are aimed in particular at avoiding double taxation by allocating the Contracting States’ rights to tax the specified elements of income (as regards the categories of tax listed in the given treaty). Those allocation rules typically either grant exclusive taxing rights to one of the Contracting States or allow taxation in both States, while providing for double taxation to be avoided, in particular, through the method of tax exemption or tax credit.

39. That said, it should be added that the objective of eliminating double taxation is often addressed in parallel with the aim of combating tax avoidance. (14) In that vein, a preamble was added to both the OECD and the UN Models in 2017 to recognise that the purpose of eliminating double taxation should not create opportunities for non-taxation or reduced taxation. (15)

40. Third, as much as the need to pursue the objectives of preventing double taxation (and double non-taxation) is acknowledged, so are the complexities that underpin the interpretation and application of various concepts used in tax agreements of which the present case provides a good illustration. (16)

41. To address such disagreements, the tax treaties contain provisions on dispute settlement. The latter typically involve an obligation for the respective authorities to ‘endeavour’ to resolve the matter, unilaterally or through a mutual agreement procedure. If those efforts fail, provision may be made for arbitration which, like the mutual agreement procedure, is a procedure between the tax authorities concerned (and is therefore not a procedure in which the tax payer would act as a litigating party). Such a scheme is provided for, inter alia, in Article 25 of the 2017 OECD Model, in Article 25 (Alternative B) of the 2025 UN Model, in Article 27 of the Convention (17) and in Article 6 et seq. of the Union Arbitration Convention. (18)

42. Taking the view that such international law mechanisms might not achieve the effective resolution of cross-border tax disputes ‘in all cases in a timely manner’, (19) the EU legislature adopted the DRM Directive with the aim of offering a more efficient solution.

43. That directive follows, similarly to the pre-existing instruments referred to above, a three-step structure ((i) filing the complaint, (ii) mutual agreement procedure and (iii) procedure before an Advisory Commission), and its added value lies in its general scope of application, (20) in the enhanced role of the taxpayer (21) and in various specific rules ensuring that the procedure moves forward within the applicable time frame, thereby contributing to the effectiveness and comprehensiveness of the entire scheme. (22)

44. Without there being a need to describe this process in detail, the main characteristics of its three stages are as follows.

45. The first stage consists in the affected person submitting a complaint on the given matter to each of the competent authorities of the Member States concerned. In submitting the complaint, the affected person has to comply with a number of requirements, and the stage ends with a decision on whether the complaint is to be accepted or rejected, which is to be taken within a period of six months. (23)

46. When the complaint is accepted and unless the respective authority resolves the matter unilaterally, the matter proceeds, second, to the mutual agreement stage. At that point, the competent authorities have the obligation to ‘endeavour to resolve’ the matter. If a mutual agreement is reached, this constitutes a decision that is binding on the authorities and enforceable by the affected person, provided that that person accepts it and renounces the right to any other remedy. That stage has to be concluded within a period of two years, which may be extended by one year. (24)

47. Third, where no agreement is reached, an obligation to set up an Advisory Commission arises in principle (at the request of the affected person). The commission set up has to deliver an opinion on the matter within six months, which may be extended to nine months. (25) That said, by derogation to the obligation to set up an Advisory Commission, Article 16(7) of the DRM Directive makes it possible for the Member States to deny access to that stage of the dispute resolution mechanism on a case-by-case basis where the matter ‘does not involve double taxation’. Latvia has availed itself of that possibility.

48. With the above general remarks in mind, I will now address the specific issue that is raised by the second question referred.

B. The concept of double taxation in the DRM Directive

49. Turning to the concept of ‘double taxation’ within the meaning of Article 2(1)(c) of the DRM Directive, I note that it is defined as ‘the imposition by two or more Member States of taxes covered by an agreement or convention [that provides for the elimination of double taxation of income and, where applicable, capital] in respect of the same taxable income or capital when it gives rise to either: (i) an additional tax charge; (ii) an increase in tax liabilities; or (iii) the cancellation or reduction of losses that could be used to offset taxable profits’.

50. That definition does not refer to national laws of the Member States which means, as the referring court observes, that it must be given an independent and uniform interpretation throughout the European Union, having regard to the wording of the provision in question, its context and the objectives pursued by the legislation of which it forms part. (26) I will examine those three aspects in turn.

1. Consideration of the wording of the definition

51. In agreement with all the governments having submitted written observations and with the Commission, I take the view that the wording of Article 2(1)(c) of the DRM Directive indicates rather clearly that, for a situation of double taxation within the meaning of that provision to occur, not only must the income or capital at issue be subject to tax competences of two (or more) Member States, but the exercise of those parallel powers must also lead to actual taxation in the States concerned. In other words, the mere fact that the same income may be subject to two (or more) tax jurisdictions in the abstract is, in my view, not enough for a situation of double taxation within the meaning of the DRM Directive to arise.

52. I consider that the above conclusion stems from the use of the word ‘imposition’ contained in Article 2(1)(c) of the DRM Directive and from the wording (i) ‘an additional tax charge; (ii) an increase in tax liabilities; or (iii) the cancellation or reduction of losses that could be used to offset taxable profits’ used in that provision.

53. Indeed, and first, the word ‘imposition’ denotes, in my view, the idea that taxes on the given income or capital are levied as opposed to being merely hypothetically due. Second, the wording ‘an additional tax charge’, ‘an increase in tax liabilities’ or ‘the cancellation or reduction of losses that could be used to offset taxable profits’ does not describe a situation of the same income or capital being subject to competing tax competences, but identifies the specific economic consequences (for the taxpayer) that such an overlap must trigger. Each set of those elements in my view confirms that the term ‘double taxation’ is to be understood in the sense of the actual levying of taxes.

54. By way of a short comparison, while neither the 2017 OECD and 2025 UN Models nor the examples of the tax treaties that I could consult appear to contain a general definition of what constitutes double taxation (for the respective purposes of those instruments), the commentary to the 2017 OECD Model describes double taxation as ‘the imposition of comparable taxes in two (or more) States on the same taxpayer in respect of the same subject matter and for identical periods’. (27)

55. Although the precise content of the various tax treaties may differ, I have explained above that the OECD Model has been modified in 2017 to emphasise, in its preamble, that efforts to eliminate double taxation should not lead to a situation of double non-taxation or of reduced taxation. In my view, such an objective makes it rather unlikely that double taxation, as the phenomenon to be avoided and described as parallel imposition, would be understood in a purely abstract way rather than as a situation in which taxes are levied more than once in respect of the same element of income. (28)

56. Be that as it may, it seems to me that, had the EU legislature intended to adopt a concept of double taxation as broad as to cover the situations in which the same income or capital is, in the abstract, merely subject to competing tax jurisdictions, the resulting definition would be rather different. It would not, in my view, refer to ‘imposition’ and it would not be further defined by reference to the three types of economic consequences described above (an additional tax charge, and so on). Indeed, had the concept of double taxation been defined by reference to the mere existence of parallel tax competences, the description of those consequences would not have any practical effect.

57. Consideration of the wording of Article 2(1)(c) of the DRM Directive thus leads me to suggest that the term ‘double taxation’ defined therein does not cover a situation where the given income is subject to the tax competences of two Member States, but is exempt from tax in one of them. The same conclusion is reached by examining the relevant context, which I will do now.

2. The relevant context of the definition

58. The definition under examination aside, the term ‘double taxation’ appears in the main text of the DRM Directive only on two further occasions.

59. It is contained, first, in Article 1 of the DRM Directive, which specifies the ‘subject matter and scope’ of that directive. It should be recalled that that directive is to set out a mechanism to resolve disputes between Member States when they ‘arise from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and, where applicable, capital’. (29)

60. That provision is clearly paramount for identifying which matters can be subject to the dispute settlement mechanism provided for by the DRM Directive. These agreements and conventions are instruments of international law and as such are different from the DRM Directive and the dispute resolution mechanism that that directive sets out. I therefore agree with the Belgian Government that the description of the tax treaties in the definition of that directive’s scope does not directly determine how the specific definition of ‘double taxation’ in Article 2(1)(c) of that directive should be understood for the purpose of that instrument of EU law.

61. Second, and by contrast, I am of the view that Article 16(7) of the DRM Directive is directly relevant to that understanding. That provision, in fact, contains the only occurrence (other than Article 2(1)(c) of that directive) of the term ‘double taxation’ used on a stand-alone basis (that is, not as a part of the description of double-taxation treaties). It should be recalled that that provision introduces an exception to the Member States’ obligation to set up an Advisory Commission which applies when the given case ‘does not involve double taxation’.

62. As was observed, in essence, by the Belgian, French and Polish Governments as well as by the Commission, the derogation provided for by Article 16(7) of the DRM Directive introduces a difference in the scope of the mutual agreement procedure, on the one hand, and the scope of the procedure before the Advisory Commission, on the other hand.

63. Indeed, the mutual agreement procedure may concern any question arising from the interpretation or application of a double-taxation treaty (as is clear from the definition of the scope of the DRM Directive in Article 1 of that directive), including a question that does not relate to double taxation (such as a question about whether taxes have been levied in accordance with a given treaty). By contrast, access to an Advisory Commission may be restricted to questions ‘involving double taxation’.

64. In other words, when considered as a whole, the dispute resolution mechanism provided for by the DRM Directive may – but does not necessarily have to – concern disputes related to double taxation, depending on the stage of the mechanism that is considered and on whether the given Member State has decided to implement the derogation in Article 16(7) of the DRM Directive. The fact that the scope of the dispute resolution mechanism considered as a whole must be differentiated is, for that matter, acknowledged in the directive’s recitals referring, in essence, to the need for an effective resolution of disputes covered by the DRM Directive, in particular (and, I would thus add, not only) disputes leading to double taxation. (30)

65. I note that the two-stage scheme of the dispute resolution system with differentiated scopes ratione materiae seems to be the result of the negotiations which took place within the legislative process. Indeed, the provision corresponding to Article 16(7) of the DRM Directive did not feature in the Commission’s proposal but seems to be derived from a compromise text, as observed in essence by the Belgium, French and Latvian Governments. (31) That insertion formed part of other, more general changes to the proposed text.

66. In its proposal, the Commission in particular intended that the dispute resolution mechanism at hand would apply to ‘disputes between Member States on how to eliminate double taxation …’. (32) In that light, the scope of the adopted DRM Directive is in fact broader than initially intended because, as far as they arise from the interpretation and application of a tax agreement, the ‘eligible’ disputes do not necessarily have to concern elimination of double taxation. Indeed, the issue to be resolved is framed in terms of a more general ‘question in dispute’, which is a shorthand used in Article 1 of the DRM Directive to describe a matter giving rise to a dispute arising from the interpretation and application of tax agreements.

67. Against that background, the insertion of the rule contained in Article 16(7) of the DRM Directive counterbalances the broadened scope of the dispute resolution system with the possibility offered to the Member States to restrict the specific stage before the Advisory Commission to cases involving ‘double taxation’. Although Article 16(7) does not contain any additional clarification about the meaning of those terms, the fact that their function is to limit the scope of one dispute resolution stage compared to a previous one confirms that they should not be given a meaning going beyond the one that follows from the textual consideration in the previous part of the present Opinion.

68. I wish to add, in agreement with the Belgian and Finnish Governments, that the conclusion that the term ‘double taxation’ appearing in Article 2(1)(c) and Article 16(7) of the DRM Directive refers to actual double taxation and not to hypothetical double taxation is not affected by the circumstance that, in the proposal, the Commission suggested excluding from the scope of the future directive ‘income or capital within the scope of a tax exemption or to which a zero tax rate applies under national rules’, (33) while that exclusion does not feature in the adopted text.

69. In that respect, the referring court shares the position adopted by the applicant before it (and in the present proceedings) pursuant to which that particular modification within the legislative process means that the concept of double taxation under Article 2(1)(c) of the DRM Directive is broad and also covers situations involving income that is subject to two parallel tax competences without actually being taxed twice. That would then mean that the derogation under Article 16(7) of the DRM Directive cannot apply in the case of hypothetical double taxation and that the Member States have to grant access to an Advisory Commission also where such double taxation does not result in taxes being levied twice.

70. To respond to that argument, I note that the above change within the legislative process affects the general scope of the dispute resolution system, with the result that the elements of income within the scope of an exemption and so on are not excluded from matters that can be submitted to that mechanism. That change, however, affects neither the definition of double taxation (which, for that matter, remained in essence the same in the proposed and adopted texts) (34) nor the balance struck within the system considered as a whole as already described. In particular, the fact that the stage of the mutual agreement procedure is rather broad does not affect the more restricted definition of the subsequent stage before an Advisory Commission.

71. This comment closes my review of the relevant context which confirms the conclusion of the textual examination set out above. What remains for me to examine are the implications of the objectives that the DRM Directive pursues.

3. Objectives pursued by the DRM Directive

72. As I have already observed, the DRM Directive is aimed at the effective resolution of disputes related to the interpretation and application of tax treaties. It follows from various recitals of that directive that the effective resolution of such disputes is needed in particular, as the applicant stresses, to ensure ‘legal certainty and a business-friendly environment for investments in order to achieve fair and efficient tax systems in the Union’. (35)

73. Admittedly, the position that the reference to double taxation in Article 16(7) of the DRM Directive should be read broadly, to the effect that access to an Advisory Commission has to be granted also in cases of hypothetical double taxation, would contribute to the pursuance of the above objectives. It would enhance legal certainty for taxpayers because obliging the Member States to resolve a disagreement as to interpretation irrespective of any actual economic impact would clarify how similar cases are to be dealt with in the future. Accordingly, it could contribute to the number of relevant disputes being reduced. After all, it follows from the description of the situation in the main proceedings that, as the applicant argues, a dispute about the interpretation or the application of the Convention persists between the Netherlands and Latvian authorities because it could not be resolved at the mutual agreement procedure stage.

74. That said, it follows from the textual and contextual interpretation conducted in the previous parts of the present Opinion that the definition of double taxation given in Article 2(1)(c) of the DRM Directive (and referred to in Article 16(7) of the DRM Directive) covers cases of actual double taxation. While, of course, the general objectives referred to above remain fully relevant, it follows from my analysis above that the EU legislature pursues them through the dispute resolution mechanism as specifically designed and balanced (that is, it should be recalled, as one having a broad scope that can be more restrained at the last stage). Reliance on those general objectives that inspired the adoption of the DRM Directive cannot thus override those features and that balance.

75. Moreover, when adopting the DRM Directive, the EU legislature stressed the importance of mechanisms for dispute resolution being not only comprehensive and effective, but also sustainable. (36) To my mind, the idea of sustainability refers, in the present context, to such features of a dispute resolution system that ensure its capacity to operate and deliver results within the applicable deadlines (over a long period of time). The pursuance of that objective aligns entirely with the definition of double taxation as referring to actual double taxation, when that definition is the relevant parameter that makes it possible to restrict a given stage of the dispute resolution system to situations in which the Member States seek to protect their tax base (and in which the risk of an excessive tax burden for the taxpayer may indeed materialise).

76. The foregoing leads me to conclude that the answer to the second question referred should be that the term ‘double taxation’ within the meaning of Article 2(1)(c) of the DRM Directive does not apply to a situation where the same income is subject to the tax systems of two Member States, but benefits from tax exemption in one of them.

V. Conclusion

77. I suggest that the Court give the following answer to the second question referred by the Administratīvā rajona tiesa (District Administrative Court, Latvia):

Article 2(1)(c) of Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union

must be interpreted as meaning that the term ‘double taxation’ contained in that provision does not apply to a situation where the same income is subject to the tax systems of two Member States, but benefits from tax exemption in one of them.

1 Original language: English.

2 For the use of the expression ‘sovereignty in matters of direct taxation’ see judgment of 12 May 1998, Gilly (C‑336/96, EU:C:1998:221, paragraph 48). I note that the Court also refers, in this context, to ‘fiscal sovereignty’. See, for instance, judgments of 19 November 2015, Bukovansky (C‑241/14, EU:C:2015:766, paragraphs 37 and 38), and of 14 November 2006, Kerckhaert and Morres (C‑513/04, EU:C:2006:713, paragraphs 19 to 23).

3 See, for instance, Reimer, E. and Rust, A., Klaus Vogel on Double Taxation Conventions, 5th ed., Wolters Kluwer Law International, Alphen aan den Rijn, 2022, at p. 14, paragraphs 2 and 3.

4 Pursuant to recital 1 of Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (OJ 2017 L 265, p. 1) (‘the DRM Directive’), ‘situations in which different Member States differently interpret or apply the provisions of bilateral tax agreements and conventions or [the Union Arbitration Convention], can create serious tax obstacles for businesses operating across borders. …’ The term ‘Union Arbitration Convention’ refers to the Convention on the elimination of double taxation in connection with the adjustments of profits of associated enterprises (90/436/EEC) (OJ 1990 L 225, p. 10).

5 Recital 3 of the DRM Directive provides that ‘the mechanisms currently provided for in bilateral tax treaties and in the Union Arbitration Convention might not achieve the effective resolution of such disputes in all cases in a timely manner. …’

6 Convention between the Republic of Latvia and the Kingdom of the Netherlands for the avoidance of double taxation and the prevention of fiscal evasion (Latvijas Vēstnesis, 1994, No 151), signed in The Hague on 14 March 1994 and in force since 29 January 1995.

7 It then goes on to state that ‘the term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry; rights to which the provisions of general law respecting landed property apply, buildings, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. …’

8 In accordance with point 2 of paragraph 1, in conjunction with paragraph 2, of Article 5 of the Law on Corporation Tax.

9 It follows from the order for reference that the conditions are as follows: (i) the ownership interest is at least 5%; and (ii) the subsidiary is not held solely as a portfolio investment; (iii) the subsidiary is subject to a reasonable effective tax rate, based on Netherland’s tax principles; or (iv) less than 50% of the subsidiary’s assets are so-called ‘passive’ assets. Those conditions are not discussed in any more depth in the order for reference.

10 See, for instance, judgment of 30 October 2025, Attal et Associés (C‑321/24, EU:C:2025:836, paragraph 27 and the case-law cited), and Opinion of Advocate General Kokott in Commission v Belgium (Directive 2016/1164 – Double taxation) (C‑524/23, EU:C:2025:381, point 1).

11 See, for instance, judgments of 12 March 2026, Marhaux (C‑150/25, EU:C:2026:188, paragraph 37 and the case-law cited), and of 25 February 2021, Société Générale (C‑403/19, EU:C:2021:136, paragraph 28 and the case-law cited). See also judgment of 14 November 2006, Kerckhaert and Morres (C‑513/04, EU:C:2006:713, paragraphs 19 and 20).

12 As summarised in the Opinion of Advocate General Mengozzi in Austria v Germany (C‑648/15, EU:C:2017:311, point 48 and the case-law cited). See also judgment of 26 February 2026, Commission v Belgium (Directive 2016/1164 – Double taxation) (C‑524/23, EU:C:2026:111, paragraphs 100 and 101), which concerns a situation where a harmonising measure exists.

13 OECD, Model Tax Convention on Income and on Capital 2017 (Full Version), OECD Publishing, 2019, p. I-1, paragraph 1 (‘the 2017 OECD Model’). See also United Nations Model Tax Convention 2025, United Nations, New York, 2025, p. iv, paragraph 6 (‘the 2025 UN Model’).

14 As indicated by the full title of those treaties, which often refers to the elimination of double taxation and the prevention of tax evasion (or similar terms), as appears to be the case in respect of the Convention (at issue in the main proceedings) and as also reflected in the modification of the general title of the OECD successive models. See the 2017 OECD Model, p. I-7, paragraph 16.

15 See the 2017 OECD Model, pp. I-7, point 16.1, M-5 and M-6 and the 2025 UN Model, p. 104, point 52. See also the Multilateral Convention to implement Tax Treaty Related Measures to prevent Base Erosion and Profit Shifting adopted under the auspices of the OECD in 2016, which is aimed at modifying the existing tax treaties to address the risk of tax evasion and avoidance.

16 See, on the complexities of the relevant concepts used in tax agreements, for instance Helminen, M., ‘General report’ on the notion of tax and the elimination of international double taxation or double non-taxation, Cahiers de droit fiscal international. Schriften zum internationalen Steuerrecht. Studies on international fiscal law, Vol. 101B, 2016, pp. 17 to 76.

17 Referred to in point 18 above.

18 Referred to in footnote 4 above.

19 Recital 3 of the DRM Directive, referred in footnote 5 above.

20 Compared to, in particular, the Union Arbitration Convention. See recital 7 of the DRM Directive pursuant to which ‘the improved dispute resolution mechanism should build on existing systems in the Union, including the Union Arbitration Convention. However, the scope of this Directive should be wider than that of the Union Arbitration Convention, which is limited to disputes over transfer pricing and the attribution of profits to permanent establishments. …’ The scope of specific bilateral tax agreements may of course be broader.

21 Commentators have drawn attention to the potential effects that may follow from the applicability of the Charter. See, for instance, Kokott, J., ‘Taxpayers’ rights’, European Taxation, January 2020, Vol. 60, No 1, pp. 3 to 7.

22 The Report from the Commission to the Council – Implementation report on the review of the DRM Directive, COM(2024) 494 final of 28 October 2024, p. 1, acknowledges the limited data available at the time that the report was drawn up to assess the operation of the DRM Directive. See also CFE Fiscal Committee, ‘Opinion statement FC 3/2020 on the directive on tax dispute resolution mechanisms in the European Union’, 20 March 2020.

23 See, on the first stage, Article 3 of the DRM Directive.

24 See, on the second stage, Article 4 of the DRM Directive.

25 Article 6(3) and Article 14(1) of the DRM Directive. For the sake of completeness, it should be added that, under Article 6(1)(a) of the DRM Directive, the obligation to set up an Advisory Commission also arises where the complaint was rejected by at least one, but not all, of the competent authorities concerned (that scenario not being relevant here).

26 See, for instance, judgment of 3 September 2026, Jautiva (C‑798/24, EU:C:2026:679, paragraph 40 and the case-law cited). I note that, pursuant to Article 2(2) of the DRM Directive, any term not defined in that directive is, in essence and unless the context requires otherwise, to have the meaning that it has at that time under the relevant applicable double taxation agreement or, failing that, under the law of the Member State concerned. Because the concept at issue here is defined in the DRM Directive, it must be construed autonomously, as I have just explained.

27 The 2017 OECD Model, p. I-1, paragraph 1. In the Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee – Double taxation in the single market, COM(2011) 712 final of 11 November 2011, p. 4, double taxation is likewise defined as ‘the imposition of comparable taxes by two (or more) tax jurisdictions in respect of the same taxable income or capital’. See also Commission staff working document – Impact assessment – Accompanying the document ‘Proposal for a Council directive on a double taxation dispute resolution mechanism in the European Union’, SWD(2016) 343 final of 25 October 2016, p. 5, point 2.1., and p. 62. For the sake of completeness, the definition given in point 54 refers to so-called international juridical double taxation (relevant here), which is generally distinguished from international economic double taxation because the latter describes the situation of two different persons being taxable in respect of the same income or capital (the 2017 OECD Model, p. C(23)-1).

28 See also judgments of 30 April 2020, Istituto nazionale della previdenza sociale (C‑168/19 and C‑169/19, EU:C:2020:338, paragraph 17 and the case-law cited), and of 12 May 1998, Gilly (C‑336/96, EU:C:1998:221, paragraph 46).

29 Emphasis added.

30 See recitals 2 and 6 of the DRM Directive. Recital 2 states that ‘… it is necessary that there are mechanisms in the Union that ensure the effective resolution of disputes concerning the interpretation and application of such bilateral tax treaties and the Union Arbitration Convention, in particular disputes leading to double taxation.’ Pursuant to recital 6 of the DRM, ‘the resolution of disputes should apply to different interpretation and application of bilateral tax treaties and of the Union Arbitration Convention – in particular to different interpretation and application leading to double taxation. …’

31 See, in particular, meeting document from the Presidency to the Working Party on Tax Questions (Direct taxation – Dispute resolution) on the Dispute Resolution Mechanism Directive: Compromise text for all articles, in view of the meeting of the Working Party on Tax Questions (Direct taxation – Dispute resolution) on 27 April 2017, WK 4620/2017 INIT of 21 April 2017, draft Article 15(7). I note that the DRM Directive was adopted based on Article 115 TFEU, which provides that ‘without prejudice to Article 114, the Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, issue directives for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market.’

32 In respect of the taxes listed in the proposed Annex I. See draft Article 1 in the proposal for a Council directive on double taxation dispute resolution mechanisms in the European Union, COM(2016) 686 final of 25 October 2016.

33 The third paragraph of draft Article 1 of the proposal referred to in the previous footnote provided that the future directive ‘does not apply to any income or capital within the scope of a tax exemption or to which a zero tax rate applies under national rules’.

34 Subject, in particular, to the change related to the modification of the initial definition of the scope of the dispute resolution system as applying to the taxes listed in an annex, as observed in footnote 32 to the present Opinion.

35 Recital 5 of the DRM Directive states that ‘it is crucial to introduce an effective and efficient framework for the resolution of tax disputes which ensures legal certainty and a business-friendly environment for investments in order to achieve fair and efficient tax systems in the Union. …’ See also recital 1, referred to in footnote 4 above, and recitals 2 and 7, referred to respectively in footnotes 30 and 20 above.

36 Pursuant to recital 4 of that directive, ‘… in the spirit of a fair taxation system, it is necessary to ensure that mechanisms for dispute resolution are comprehensive, effective and sustainable. …’.

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