The European Council on October 6 reached unanimous agreement on a directive that would require EU states to automatically exchange information about private tax rulings with other EU states.
The agreement obliges EU tax authorities to automatically provide information to all other EU states about still-valid advance pricing agreements and other private cross-border tax rulings issued since 2012. Exchanges will begin January 1. 2017, and will continue to take place every six months thereafter.
The agreement was hailed by Pierre Gramegna, minister of finance of Luxembourg and president of the Council, as “a decisive step towards greater transparency in tax matters.”
According to the agreement, though, rulings issued before 2012 would not need to be exchanged, even if the ruling is still in force on January 1, 2017, and thereafter.
This leaves a gap in the law because older private rulings — for example the private ruling granted to an Amazon subsidiary by Luxembourg that is the subject of the EU state aid investigation — would never need to be disclosed under the plan even if the ruling is still in force in 2017. Though signed in 2003, the Amazon ruling was in force as of October 7, 2014, according to EU Commission documents, and could still be in force today.
Further, under the agreement, any private ruling issued to a small and medium sized company (annual net turnover of less than €40 million at a group level) before April 2016 is exempt from automatic disclosure, except for those involved in financial or investment activities. Such rulings are very likely to be still in force once the automatic exchange obligation begins nine months later, but need not be disclosed.
The decision to exempt older, in-force, tax rulings from automatic disclosure will likely receive a cool reception from EU Parliament Committee on Tax Rulings Chairman, Alain Lamassoure, who has previously called the concept “absurd.”
“I think we have to take into account all rulings which now apply. They might have been decided five years ago, ten years ago, 50 years ago, or three centuries ago. It does not matter. What matters is if they still apply,” said Lamassoure at a September 22 hearing.
The EU currently requires spontaneous exchange of information on private tax rulings; however, the system does not work adequately because states use loopholes in the law to avoid providing information.
The new agreement provides that information exchanged will be stored in a secure central directory, accessible to all member states. It also provides that the EU Commission may access the information to make certain the exchange is being carried out, but it may not review the rulings for other purposes, such as to determine if a ruling violates state aid.
Member states will need to transpose the new rules into national law before the end of 2016, to allow the directive to come into effect on January 1, 2017.
The initiative to begin automatic exchange of private tax ruling information in the EU was first announced by Commission President Jean-Claude Juncker in November 2014, one week after the “Lux Leaks” scandal became public.
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