EU: AUTOMATIC EXCHANGE OF INFORMATION, CROSS-BORDER TAX RULINGS AND APAS

EU finance ministers today agreed to introduce provisions for the automatic exchange of information on cross-border tax rulings—the latest development concerning the European Commission’s initiative to address tax avoidance and harmful tax competition. Detailed provisions to be included in a directive are expected to be finalized before the end of 2015, so the exact content of the new rules will not be known until that time.

CHANGES TO INITIAL PROPOSAL

As part of an initiative to address tax avoidance and harmful tax competition, the EC in March 2015 proposed to amend the current EU Directive on Administrative Co-operation (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).

Today, seven months later, the Economic and Financial Affairs (ECOFIN) Council adopted an amended version of this proposal, but with certain changes.
The proposal would have required EU Member States to automatically exchange information on cross-border tax rulings and APAs that were issued over the last 10 years. Today’s agreement reduces the retroactive period to five years.

Also, advance cross-border rulings and APAs issued, amended or renewed after 31 December 2011 fall within the scope of the new rules, provided that the advance rulings or APAs are still valid on 1 January 2017. Rulings that are no longer valid on 1 January 2017 will also fall within the scope of the new rules, provided that they are issued, amended or renewed after 31 December 2013.

Rulings and APAs concerning small and medium size enterprises (SMEs) that meet a group-wide annual net turnover of a maximum of €40 million, do not have to be exchanged if they are issued, amended or renewed before 1 April 2016.

LIMITED INFORMATION

In addition to exchanging the rulings with the competent authorities of all other EU Member States, information will also have to be communicated to the European Commission. However, the information provided to the EC 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 EC.

The amended directive also takes account of concerns regarding trade secrets. The information to be disclosed would 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.

WHAT’S NEXT?

The detailed provisions to be included in the directive are expected to be finalized before the end of 2015. The EU Member States will then have to transpose the proposals into their domestic law by the end of 2016.

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.

Read an October 2015 report prepared by KPMG’s EU Tax Centre.