European Commission adopts new rules to help EU tax authorities exchange information

On December 15, 2015 the European Commission issued a media release announcing that on that same date it adopted new rules to make it easier for EU Member States’ tax authorities to exchange financial information so that they can ensure full tax transparency and cooperation.

According to the media release the detailed rules mean that the practical arrangements are now in place for the entry into application of the amended Directive on Administrative Cooperation (Council Directive 2011/16/EU) from January 1, 2016.

According to the European Commission, from January 1, 2016, information will be exchanged between Member States tax administrations on all relevant financial income including interest, dividends and other similar types of income. Information on account balances, sale proceeds from financial assets and income from certain insurance products is also part of the scope. It is furthermore stated that the agreed rules are consistent with the OECD global standard of exchange, meaning that EU tax authorities will be able to use one single format for exchanging information both within and outside the Union.

On its webpage Taxation and Customs Union, the European Commission states that the main provisions of the Directive (as amended in 2014 and 2015) include a.o.:

• The Directive provides for the exchange of information in three forms – spontaneous, automatic and on request.

• Under spontaneous exchange, a country provides its treaty partner with information about likely tax evaders if it happens to uncover such information during its own audits.

• Automatic exchange consists of the automatic provision of information by one country to another on income of residents of the second country and, in the case of cross-border tax rulings and advance pricing arrangements, the automatic provision of information to all Member States and the Commission. This form of exchange is usually in electronic form and usually on a mutually agreed periodic basis. Information exchange on request is a response by one country to a request by another country for information.

• These three forms of information exchange conform with standards agreed by tax administrations at international level, notably at the OECD.

• The Directive provides for the exchange of information that is of `foreseeable relevance` to the administration and the enforcement of Member States’ tax laws.

• The scope of the Directive encompasses all taxes of any kind with the exception of VAT, customs duties, excise duties and compulsory social contributions because those taxes are already covered by other Union legislation on administrative cooperation.

• The scope of persons covered by particular exchanges depends on the particular subject matter but the Directive as a whole covers natural persons (i.e. individuals), legal persons (i.e. companies), associations of persons and any other legal arrangements.

• The Directive provides for mandatory automatic exchange of information, where information is available, in respect of five non-financial categories of income and capital, with effect from 1 January 2015 i.e. for 1) income from employment, 2) director’s fees, 3) life insurance products not covered by other Directives, 4) pensions, and 5) ownership of and income from immovable property.

• Since its amendment on 9 December 2014, the Directive also brings a list of financial information within the scope of the automatic exchange of information with effect from 1 January 2017. This information consists of interest, dividends and similar type of income, gross proceeds from the sale of financial assets and other income, and account balances.

• Following a Commission report and on the basis of a new proposal by the Commission, the above two lists of financial and non-financial categories and items might be extended to include additional categories and items to be subjected to the mandatory automatic exchange of information. In addition, the Council may also decide to introduce unconditional automatic exchange of information in respect of the above-mentioned five non-financial categories.

• Since its amendment on 8 December 2015, the Directive has also provided for the automatic exchange of information regarding cross-border tax rulings and advance pricing arrangements with effect from 1 January 2017.

• The Directive ensures that the EU standard for exchange of information on request is aligned to international standards by providing that Member States can no longer refuse to supply information solely because this information is held by a bank or other type of financial institution.

• The Directive also ensures that the existing mechanisms for exchange of information are improved. Deadlines are included to ensure the swift exchange of information on request (reply within six months following receipt of request), for spontaneous exchange of information (transmission of information no later than one month after it becomes available) and for automatic exchange of information (depending on the situation).

• The Directive provides for feedback by the Member States that have received information. Such feedback should be given, at the latest, three months after the outcome of the use of the information is known, in the case of information received spontaneously or on the basis of a request, or once a year in the case of information received automatically.

• The Directive provides for other means of administrative cooperation including by allowing officials of a Member State which has made a request for information to be present in the offices of the tax authorities of the requested Member State, or to be present during administrative enquiries carried out by the requested Member State. Also provided for are simultaneous controls (audits), notifications to taxpayers of requests received from another Member State, and sharing of best practices.

• The Directive provides for the introduction of standard forms for exchange of information on request and spontaneous exchanges, computerised formats for the automatic exchange of information, electronic channels for exchanging information and a central directory for storing and sharing information on cross-border tax rulings and advance pricing arrangements.

• The Directive contains a most favoured nation clause: if a Member State provides wider cooperation to a third country than that provided for under the Directive, it may not refuse such wider cooperation to another Member State that requests it on its own behalf.

• The Directive establishes a regulatory committee, which will be competent for implementing the technical aspects of the Directive.