Global Tax Alert (News from EU Tax Services) | 6 October 2015

EU Council reaches political agreement on the automatic exchange of information on tax rulings

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Executive summary

On 6 October 2015, the Economic and Financial Affairs Council of the European Union (ECOFIN) reached a political agreement on the automatic exchange of information on tax rulings. This Directive aims at increasing transparency in relation to the assurances given by member states to cross-border companies about how their taxes will be calculated. The Directive should ensure that where one member state issues an advance tax ruling or transfer pricing arrangement, any other member state affected is in a position to monitor the situation and the possible impact on its tax revenue. The new rules will have to be applied from 1 January 2017.

Detailed discussion

A tax ruling is an assurance that tax authorities give to taxpayers on how certain aspects of taxation will be dealt with in specific cases. An advance pricing arrangement (APA) is a type of a tax ruling, issued by tax authorities to determine the method and other relevant details of pricing to be applied to transfer of goods or services between companies.

Under the Directive, Member States will be required to exchange information automatically on advance cross-border tax rulings, as well as APAs (“push”). Member states receiving the information will be able to request further information where appropriate (“pull”). The European Commission will be able to develop a secure central directory, where the information exchanged would be stored. The directory will be accessible to all member states and, to the extent that it is required for monitoring the correct implementation of the directive, to the Commission. The Directive also considers confidentiality issues such as safeguarding the protection of taxpayers' personal data as well as the protection of commercial interests.

The obligations stated above in relation to the exchange of information does not cover advance cross-border tax rulings which exclusively concern the tax affairs of one or more natural persons.

Implementation

The new rules will have to be applied from 1 January 2017. In the meantime, existing obligations to exchange information between member states will stay in place.

In principle, the Directive will be retroactive to 1 January 2012. However, concerning rulings issued before 1 January 2017, specific transition rules will apply:

  • If advance cross-border rulings and APAs are issued, amended or renewed between 1 January 2012 and 31 December 2013, such communication shall take place under the condition that they are still valid on 1 January 2014.
  • If advance cross-border rulings and APAs are issued, amended or renewed between 1 January 2014 and 31 December 2016, such communication shall take place irrespectively of whether they are still valid or not.

Finally, Member States will have the possibility (not an obligation) to exclude from information exchange advance tax rulings and pricing arrangements issued to companies with an annual net turnover of less than €40 million at the group level, if such advance cross-border rulings and APAs were issued, amended or renewed before 1 April 2016.

However, this exemption will not apply to companies conducting mainly financial or investment activities.

Implications

Luxembourg's Finance Minister Pierre Gramegna (who chaired the meeting) noted that the timing of the agreement is really propitious, referring to the fact that the Council's agreement comes just a day after the Organisation for Economic Co-operation and Development (OECD) presented the final deliverables in the context of the base erosion and profit shifting (BEPS) project. “The EU is showing the way,” the Luxembourg Finance Minister said. “Europe is a pioneer in this matter and is sending a strong signal to the rest of the world in terms of transparency in tax matters.”

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, considered the political agreement “a major step in combating aggressive tax planning, creating greater transparency in corporate taxation and in providing fairer competition for both businesses and consumers.” Moscovici furthermore stated that the “EU will continue to work to implement these transparency rules worldwide.”

The political agreement on the automatic exchange of information on tax rulings is part of the bigger Transparency Package proposed by the European Commission in March 2015.1 The Directive could be seen as marking what the Commission refers to as the start of a new era of transparency. In particular, the Transparency Package must be viewed in conjunction with Action 13 of the OECD's BEPS project which obligates companies to report taxes paid via the country-by-country reporting template, as well as to furnish tax authorities with increased levels of transfer pricing information via the Master File and Local File mechanism. The newly adopted rules on automatic exchange of information are expected to further increase the transparency and cooperation among Member States on tax matters.

Endnote

1. See EY Global Tax Alert, European Commission presents a package of tax transparency measures, dated 19 March 2015.

For additional information with respect to this Alert, please contact the following:

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
  • Dr. Klaus von Brocke
    +49 89 14331 12287
    klaus.von.brocke@de.ey.com
Ernst & Young Belastingadviseurs LLP, Amsterdam
  • Dr. Daniel Smit
    +31 88 407 84 99
    daniel.smit@nl.ey.com

EYG no. CM5833