On 18 March, the European Commission released draft legislation regarding automatic exchange of information on cross-border tax rulings, as part of a package of measures to combat tax avoidance and harmful tax competition. If approved by Member States, the new automatic exchange would apply from 2016. Other measures proposed in the package include a repeal of the EU Savings Directive and a possible extension of country-by-country reporting by companies in all sectors.
The proposals on tax rulings take the form of an amendment to the current EU Directive on Administrative Co-operation (DAC) in the field of direct taxation (2011/16/EU). Until 2015 the DAC only required spontaneous exchange of information and, although in practice this could include tax rulings, it was not considered an effective mechanism mainly because of its limited and uncertain scope. In practice very little information on tax rulings has been shared. As from 2015 (and again from 2016) the DAC has been extended to include automatic exchange of information on certain types of income (see Tax News 2014-27), but tax rulings are not specifically covered. This omission was addressed in the Commission’s Work Programme 2015 and has now resulted in the current proposals.
Scope of new rules
The proposals would require Member States to automatically exchange information on cross-border tax rulings, including APA’s, with each other as well as with the Commission. This would apply for all rulings granted over the past 10 years, as long as they are still in force.
The information must be exchanged on a quarterly basis. The minimum requirements for information to be covered include:
Member States can in principle request further information including the full text of the ruling in question.
The new rules are widely drafted to include all arrangements entered into on behalf of a Member State regarding the interpretation or application of its tax laws that are granted ahead of the transactions concerned. Domestic tax rulings and rulings concerning individuals are not to be covered.
Under the current proposals it will not be possible for a Member State to refuse to exchange information on tax rulings on grounds of commercial secrets. However, the Commission considers such interests would be adequately protected under EU law.
Interaction with other initiatives
The Commission’s proposals on tax rulings should be seen in the context of the OECD’s similar proposals in BEPS Action 5, which advocates “compulsory spontaneous exchange” of tax rulings. However, not only are the latter non-legally binding but they are also more restricted in scope.
The proposed exchange of information on tax rulings should be distinguished from the recent investigations by the Commission into tax rulings of certain multinationals in the context of state aid (see, e.g. Euro Tax Flash 244 (PDF, 171 KB)). Although the information on rulings will also be exchanged with the Commission, that does not mean that a Member State no longer has to notify the Commission in advance of state aid.
It should also be noted that the country-by-country reporting being considered under the new proposals would involve public disclosure, in line with the EU rules for banks and the extractive industry, rather than that envisaged under the OECD’s BEPS Action 13.
Repeal of the EU Savings Directive
The reason for the proposed repeal of the Savings Directive is that its provisions have effectively been incorporated into the 2016 amendments to the DAC, by integrating the rules of OECD’s Common Reporting Standard. Austria will however continue applying the Savings Directive one year longer, with some minor exceptions.
If approved by all Member States, the proposals must be implemented into their domestic legislation by the end of 2015, and be applied from 1 January 2016. It is expected that the Commission will publish an action plan on corporate taxation before the Summer 2015, that will address the Common Consolidated Corporate Tax Base (CCCTB) initiative and ideas for integrating OECD/BEPS proposals into EU law.
KPMG Luxembourg Comment
This package of proposals forms part of the various international initiatives aimed at fighting aggressive tax planning and at increasing transparency in corporate tax matters. The Commission’s proposal that all Member States should automatically exchange information on their tax rulings must be seen as a positive step as it will ensure a level playing field among Member States. Furthermore, the EU Commission reaffirmed at this occasion that tax rulings are not intrinsically problematic and granting them is not illegal or against EU law. In fact, many tax authorities provide them in order to give businesses the legal certainty that they need to have before putting in place large or complex commercial structures.
The timetable for implementing the proposal on tax rulings is ambitious but the EU Commission seems confident it can succeed in reaching a full political commitment from Member States in a timely manner given that the European Council, in December 2014, called on the Commission to make this proposal. Luxembourg Prime Minister Xavier Bettel indicated in this respect, at the end of the meeting of the European Council of last December, that “the vast majority of EU Member States issue tax rulings. Luxembourg is strongly in favour of the creation of a level playing field with regard to international taxation and tax rulings. The Commission’s decision to review the tax practices of all Member States, as well as the upcoming European directive introducing a mandatory automatic exchange of information on tax rulings, are important steps in that direction”.
The repeal of the Savings Directive is an anticipated step given the Common Reporting Standard had been integrated into the DAC end of last year.
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