Luxembourg Tax News 2015-24

Luxembourg Tax News 2015-24

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EU agreement on mandatory exchange of information on cross-border tax rulings

EU finance ministers yesterday agreed to introduce the automatic exchange of information on cross-border tax rulings. This is the latest outcome of the Commission’s initiative to combat tax avoidance and harmful tax competition. The comments below on the new rules are based on the proposed legislative text discussed in yesterday’s ECOFIN meeting, and on the subsequent press conference and release. The detailed provisions to be included in the Directive are expected to be finalized before the end of 2015. The exact content of the new rules will therefore not be known until that time.

The agreed rules deviate from an earlier proposal (see our newsletter 2015-11), in particular, in regard to the following:

  • retrospective timeframe reduced to 5 years;
  • small and medium-sized enterprises (SMEs) excluded from retrospective disclosure; and
  • European Commission to have limited rights to the information exchanged.

 

Background

As part of its initiative to combat tax avoidance and harmful tax competition, the Commission issued a proposal in March this year to amend the current EU Directive on Administrative Cooperation (DAC) in the field of direct taxation (2011/16/EU) by requiring the mandatory automatic exchange of information for tax rulings and advance pricing arrangements (APAs). Now, seven months later, the Economic and Financial Affairs (ECOFIN) Council has adopted an amended version of this proposal.

 

Amendments to earlier proposal

The Commission’s earlier proposal required Member States to automatically exchange information on cross-border tax rulings and APAs that were issued over the last 10 years. This retrospective period has been reduced to 5 years. More specifically, advance cross-border rulings and APAs issued, amended or renewed between 1 January 2012 and 31 December 2013 fall within the scope of the new rules, provided that they are still valid on 1 January 2014. Advance cross-border rulings and APAs issued, amended or renewed between 1 January 2014 and 31 December 2016 fall within the scope of the new rules irrespectively of whether they are still valid or not.

Unlike the earlier draft, rulings and APAs concerning SMEs do not have to be exchanged if they are issued, amended or renewed before 1 April 2016. The threshold agreed upon is a group-wide annual net turnover of a maximum of EUR 40 million. However, this exemption will not apply to companies conducting mainly financial or investment activities.

In addition to exchanging the rulings with the competent authorities of all other Member States, information will also have to be communicated to the European Commission. However, the information provided to the Commission will be limited to generic information on the ruling or APA. Detailed information, such as the identification of the taxpayer or the content of the ruling, will be excluded from the information that is to be sent to the Commission.

The amended directive also takes account of concerns regarding trade secrets. The information to be disclosed should include a summary of the ruling, including a description of the relevant business activities or transactions, but exclude the disclosure of a commercial, industrial or professional secret or of a commercial process, or of information whose disclosure would be contrary to public policy.

The amended directive stresses the requirement for close coordination with OECD initiatives and refers to the standard forms and means of communication developed by the OECD’s Forum on Harmful Tax Practices with respect to the form of mandatory automatic exchange of information.

 

Next steps

The detailed provisions to be included in the Directive are expected to be finalized before the end of 2015.The Member States will then have to transpose the proposals into their domestic legislation by the end of 2016. The implementation of the amended Directive at the national level will likely be carried out largely at the same time as the implementation of the OECD BEPS Action Plan (although the planned timeframes are not identical), resulting in similar rules also being transposed into the  national law of non-EU Member States.

 

KPMG Luxembourg Comment

Tax authorities from all EU countries are likely to welcome the reduction in the period for retroactive exchange, given the administrative burden involved. At the same time, limiting the disclosure in respect of trade secrets is likely to be welcomed by taxpayers.

The work on taxation is one of the main priorities of the Luxembourg Presidency of the Council of the EU. The political agreement reached during the ECOFIN (on October 6) with respect to mandatory automatic exchange of tax rulings is therefore another key step towards an increased transparency in tax matters. In this respect, Luxembourg has also reaffirmed its willingness to ensure that the fight against tax fraud and tax evasion is placed in a global context and to ensure the creation of a ‘level playing field’.

Tax transparency and exchange of tax rulings are among the topics that will be addressed by our KPMG experts during our BEPS conference to be held in Luxembourg on 22 October 2015.

 

For further information, please do not hesitate to contact us.

 

 

 

 

 

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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