European Union: EC’s Proposal For Automatic Exchange Of Tax Rulings

On March 18th 2015, the European Commission published a new initiative on tax transparency to fight tax evasion and avoidance. The initiative includes a proposal to extend the scope of the Directive on Administrative Co-operation in the field of direct taxation (2011/16/EU), amended by Council Directive 2014/107/EU (the “Directive”) by introducing an automatic exchange of information between Member States on their advance cross-border tax rulings (“Ruling”) and advance pricing arrangements (“APA”).

The Commission’s proposal (the “Proposal”) would require each Member State to communicate every three months the Rulings or APAs issued or amended after the date of entry into force of the Proposal. For Rulings and APAs that have been issued within the last ten years but are still valid on the date of entry into force of the Proposal, the information will be exchanged before December 31st 2016.

Provided that unanimity is reached in the Council and the Proposal enters into force by the end of 2015, the amended Directive would be applicable as from January 1st 2016 and cover all Rulings and APAs that have been issued as from and including 2005.

Member States shall adopt by December 31st 2015 the legislation necessary to comply with the Proposal.

The exchange of information will be carried out using a standard form that has to be adopted by the EU Commission. Also, the EU Commission will develop a database where information may be recorded and centralised for other Member States to detect certain abusive tax practices by companies and take the necessary action in response. If, after this initial exchange, a Member State believes that it needs more information on a particular Ruling or APA, it can request more details or the full text of the document.

Rulings and APAs that cover purely domestic transactions or cross-border rulings that exclusively concern and involve the tax affairs of natural persons are outside the scope of the current proposal and therefore not subject to exchange of information.

The Tax Transparency Package is the first step towards a broad Commission agenda against corporate tax avoidance. The next step will be an Action Plan on corporate taxation, which is expected for summer 2015. It will include the launch of a debate on the Common Consolidated Corporate Tax Base (“CCCTB”) and ideas for integrating new OECD/G20 base erosion and profit shifting (“BEPS”) actions at EU level. A third step is a proposal to repeal the EU Savings Directive, since the recently revised Directive covers the same types of income and overlaps in its scope. Again, the goal of the Commission is to increase effectiveness of reporting mechanisms and to avoid parallel provisions that follow similar targets.