Global Tax Alert (News from EU Tax Services) | 30 July 2015

European Parliament's Special Committee on Tax Rulings issues an interim report

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Executive summary

On 20 July 2015, the European Parliament's Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect (also known as the TAXE committee) published a 36-page interim report1 (the Report) setting out its initial findings, conclusions and draft recommendations following its investigation into the tax ruling practices of European Union (EU) Member States. The draft recommendations are extremely wide-ranging, going further than the examination of existing tax ruling practices, and covering other issues such as country-by-country reporting, the regulation of tax advisers and base erosion and profit shifting (BEPS) issues generally.

This is not the Committee's final report (which is due in November 2015), and it should be noted that the Report was drafted by two rapporteurs (i.e., persons appointed by an organization to report on the proceedings of its meetings) and will be debated by the Special Committee in due course.

The Report does, however, provide some insight into the possible trajectory of the TAXE committee and the ultimate measures that the European Parliament may recommend that the Commission adopts in due course.

It should also be noted that the high level findings and recommendations of the TAXE Report are completely separate from the findings and any potential measures that may result from the Commission's existing state aid inquiries.

Detailed discussion

Creation of the Committee

The TAXE Committee was constituted on 26 February 2015, following a European Parliament decision on 12 February 2015. Since that time, the Committee has convened a number of meetings, during which it has heard input from EU Commissioners Vestager (Competition) and Moscovici (Economic and Financial Affairs, Taxation and Customs), Organisation for Economic Co-operation and Development (OECD) representatives, whistleblowers, investigative journalists, experts, academics, representatives of multinational companies (MNCs), professional associations, the largest accountancy companies, trade unions, non-governmental organizations and members of EU national parliaments. Delegations from the TAXE Committee also have visited Switzerland, to look into specific aspects of the third-country dimension of its mandate, as well as conducting fact-finding missions to the EU Member States of Belgium, Luxembourg, Ireland, the Netherlands and the United Kingdom.

In regard to these various inputs, the Report notes that some of the Committee's work was hindered by the fact that the Council and a number of Member States did not reply in due time and did not forward all documents requested. In addition, it was noted that, out of 18 MNCs invited, only 4 agreed to appear before the Committee.

Report contents

The Report starts by arguing that the recent leaking of information on tax rulings in Luxembourg has resulted in increased public concern about “the extent of the use of secret deals featuring complex financial structures designed to obtain drastic tax reductions.” It states that the issue relates to many Member States, rather than just Luxembourg, and that the availability of tax rulings allows some Member States to “artificially increase [their] national tax base at the expense of other countries.” It also states that there has been a “blatant lack of cooperation between Member States” and that the Commission therefore needs to act.

The Report recognizes that tax rulings are not intrinsically problematic since they can provide legal certainty for the taxpayer. This is appropriate where the tax laws or their particular application in certain circumstances are unclear or subject to diverging interpretations, in particular with regard to complex transactions, since this can avoid future disputes between the taxpayer and the tax authority. That said, the Report moves swiftly on to the types of rulings that it considers not to be appropriate, while noting that there is no commonly agreed definition of tax rulings at the international level except for the Commission's reference to them as ”any communication or any other instrument or action with similar effects, by or on behalf of the Member State regarding the interpretation or application of tax laws.”

The Report sets out a number of key findings from its fact-finding missions to five EU Member States and Switzerland, across which the TAXE committee observed that, in their view, a number of national tax measures have the potential to be considered as harmful tax practice. The Report sets out some relevant examples, which it notes should not be considered as an exhaustive list:

  • Diverging definitions of permanent establishment and tax residence, and relationship with economic substance (sometimes allowing taxation in the absence of economic substance or, conversely, no taxation of revenue stemming from real economic activity)
  • Deduction of notional interests (enabling companies to deduct from their taxable income a fictitious interest calculated on the basis of their shareholders' equity)
  • Excess profit ruling practices (through which a company may obtain written confirmation from the tax administration that its taxable income does not include those profits that would not have been realized in a ”stand-alone” situation)
  • Unclear or uncoordinated transfer pricing provisions
  • A number of preferential regimes, in particular in relation to intangibles (patent, knowledge or IP boxes)
  • Exemption of withholding tax on interest, dividends and royalties through bilateral tax treaties
  • Differences in legal designations between Member States (hybrid entities or hybrid loans)
  • In the case of Switzerland, special tax regimes at the cantonal level for foreign controlled companies which are not granted to nationally controlled companies

Alignment to the OECD agenda

The Report stresses the complementary nature of EU and OECD activity in “addressing aggressive tax planning by MNCs,” arguing that the EU has a strong role to ensure coordination and convergence of tax systems to avoid harmful tax competition within the internal market. The Committee is convinced that, while ensuring that its competitiveness is not adversely affected, the EU could put in place more effective tools to ensure fair tax competition. In this regard, the Report notes that that EU bodies which should prevent the introduction of harmful tax measures (such as the Code of Conduct Group set up by Member States in 1998), often react too little, and that a mass of new and often aggressive rulings or agreements have been introduced in the EU by the Member States.

Recent developments

In terms of addressing such practices, the Report notes that recent state aid proceedings include:

  • The initiation, in June 2013, of an inquiry into tax rulings practices in seven Member States, extended to all Member States in December 2014
  • In parallel, the initiation of a separate inquiry on intellectual property taxation regimes (patent boxes)
  • The opening, in June 2014, of formal investigations into three cases (Ireland, Luxembourg and the Netherlands), followed, in October 2014, by a further investigation in relation to Luxembourg
  • The opening, in February 2015, of a formal investigation into Belgium's excess profit ruling system

Report conclusions

The Report sets out a series of conclusions in relation to the TAXE Committee's work, stating that, despite the various limitations and obstacles encountered in carrying out its fact-finding missions:

  • Without prejudice to the outcome of the Commission's ongoing state aid investigations, the information gathered indicates that, in several cases, Member States did not comply with Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), since they introduced tax rulings and other measures similar in nature or effect which, by favoring certain undertakings, have distorted competition within the internal market and affected trade between Member States
  • Member States did not fully enforce Article 108 of the TFEU since they failed to formally notify the Commission of all their plans to grant tax-related aid, thereby also infringing the corresponding provisions of Council Regulation (EC) No 659/1999; stressing that, as a result, the Commission could not keep under constant review all systems of aid, as provided for in Article 108 of the TFEU, since it did not have access to all the relevant information, at least before 2010, which is the period not covered by its ongoing investigations
  • Member States did not comply with the obligations set out in Council Directives 77/799/EEC and 2011/16/EU since they did not spontaneously exchange tax information, even in cases where there were clear grounds, despite the margin of discretion left by those directives, for supposing that there may be tax losses in other Member States, or that tax savings may result from artificial transfers of profits within groups
  • Member States did not comply with the principle of sincere cooperation enshrined in Article 4(3) of the Treaty on European Union, since they did not take all appropriate measures, general or particular, to ensure the fulfilment of their obligations

On the basis of these conclusions, the Report calls upon the Member States and the EU institutions, which share the political

responsibility for the current situation, to fully cooperate in order to eliminate mismatches – and refrain from creating further mismatches – between “tax systems and harmful tax measures which create the conditions for massive tax avoidance by MNCs and tax base erosion within the internal market.” To enable such cooperation, the Report further calls on the EU Heads of State and Government to make clear political commitments to taking urgent action to tackle the situation.

Report recommendations

Among others in the interim report, the TAXE committee sets out the following recommendations:

  • Ongoing cooperation and exchange of information in relation to rulings:
  • Calls on the European Council to adopt, by the end of 2015, the legislative proposal (amending Directive 2011/16/EU) in relation to the mandatory automatic exchange of information in the field of taxation
  • Calls for an extension of the automatic exchange of information to all rulings - cross border and national level -- and, in the longer term, for a clearing house system, through which tax rulings will be screened at the EU level to check whether they have a harmful effect on other Member States
  • Calls on Member States to consider that any tax ruling of a cross-border nature should, in particular when involving transfer pricing, be established in cooperation with all involved countries
  • Tackling harmful tax practices:
  • Calls on the Commission to consider establishing a common EU framework for tax rulings
  • Introduces guidelines for tax advisers and assesses the possibility of introducing sanctions for firms implementing or promoting ”tax dodging and aggressive tax planning”
  • Calls for an urgent reform of the Code of Conduct on business taxation and of the Group charged with its enforcement, with a view to addressing the obstacles currently in the way of effectively tackling harmful tax practices
  • Calls on the Commission to propose the establishment of an EU legislative framework for the effective protection of whistleblowers and the like
  • Transparency and disclosure:
  • Reiterates its position that MNCs should disclose country-by-country reporting information in their financial statements and that such information should be available to the public, possibly in the form of a central EU register
  • Calls for more extensive country-by-country reporting to be made available to tax authorities, building on the OECD standard and including more detailed information, such as tax returns and intra-group transactions; calls also for harmonized accounting standards to be developed
  • Addressing other issues related to base erosion and profit shifting, tax evasion and avoidance:
  • Supports the OECD BEPS action plan but stresses that the OECD approach is still based on soft law and that its action should be complemented by a proper legislative framework at EU level, e.g., in the form of an anti-BEPS directive
  • Calls for a common EU approach to tax havens
  • Stresses the need for outgoing financial flows to be taxed at least once, possibly through a withholding tax, to ensure profits do not leave the EU untaxed
  • Calls on the Commission to speed up the presentation of legislative modifications for the prompt establishment of a compulsory EU-wide Common Consolidated Corporate Tax Base, including minimum and maximum effective tax rates
  • Highlights the fact that specific attention should be paid at national, EU or international level to the situation of developing countries

The Report also calls on the Commission to include in its proposals provisions aimed at clarifying the definition of research and development investments and

of permanent establishment in line with economic substance, covering also the digital economy.


The sheer breadth and scope of the Report recommendations (covering almost 20 key areas, extending far beyond the granting of tax rulings) demonstrates the role that the European Parliament sees for itself in addressing the issue of taxation. In that regard, it may reasonably be expected that the draft recommendations, to be developed into final form by November 2015, will influence not only the political lens through which existing state aid investigations are viewed, but also the ongoing series of recommendations by the European Commission, which include a range of tax transparency measures2 as well as a “new Action Plan for a fairer corporate taxation system in the EU.”3

While not all EU Member States will agree with all of the Report recommendations, it is clear that the European Parliament wishes to change the current system and that it will continue to actively engage with the Commission. Businesses operating in the EU are advised to monitor and engage actively to ensure that the policy makers understand the impact of the proposals that they are considering.



2. Please see EY Global Tax Alert, European Commission presents a package of tax transparency measures, dated 19 March 2015.

3. Please see EY Global Tax Alert, European Commission publishes new Action Plan for a fairer corporate taxation system in the EU, dated 17 June 2015.

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

Ernst & Young Société d'Avocats, Paris
  • Jean-Pierre Lieb
    +33 1 55 61 16 10
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
  • Dr. Klaus von Brocke
    +49 89 14331 12287
Ernst & Young Belastingadviseurs LLP, Amsterdam
  • Dr. Daniel Smit
    +31 88 407 84 99
Ernst & Young, LLP (United Kingdom), London
  • Chris Sanger
    +44 20 7951 0150
Ernst & Young LLP, Washington, DC
  • Rob Thomas
    +44 20 7760 5538

EYG no. CM5645