The European Commission on March 18 released a proposal that would require EU states to automatically exchange information about their tax rulings with other EU states. The Commission also announced plans to study the possibility of imposing greater tax transparency requirements on companies operating in the EU.
The proposal, first announced by Commission President Jean Claude Juncker last November, would oblige EU tax authorities to provide information to all other EU states on advance pricing agreements and other cross-border rulings issued since 2005. Beginning January 2016, information on new tax rulings would be exchanged automatically every three months. Tax rulings issued to natural persons would be exempt.
“The current EU rules do not allow countries to protect their tax base, The proposal I present today will change that,” EU Commissioner for Economic and Financial Affairs, Taxation, and Customs Pierre Moscovici told a news conference.
The EU currently requires spontaneous exchange of information on tax rulings; however, the system does not work adequately, Moscovici said. “Unlike the current provisions for tax rulings – which clearly are not sufficient – there will be no escape clauses, and no room for interpretation, on these requirements,” Moscovici said.
Under the proposal, the Commission broadly defines a ruling as “any communication or other instrument or action of similar effect, given by or on behalf of a Member State, regarding the interpretation or application of its tax laws.”
Also, unlike current rules for spontaneous exchange, Member States would no longer be able to refuse to exchange information on the grounds of protecting commercial secrecy or public policy.
Information exchanged will include the name of taxpayer and group; a description of the issues addressed in the tax ruling; a description of the criteria used to determine an advance pricing arrangement; identification of the Member States most likely to be affected; and identification of any other taxpayer likely to be affected.
Member States will be able to ask for more detailed information on particular rulings.
Moscovici insisted that it is “essential” that information on tax older rulings be exchanged. “We must have exchange of information on what has been happening over the last ten years,” he said.
Multinational transparency
The Commission also said it plans to examine the feasibility of new transparency requirements for companies, including the possibility of public release of multinational country-by-country reporting data.
The Commission noted that country-by-country reporting data for EU banks and extractive and logging companies is released to the public. “Extending the obligation for public disclosure of certain tax information by multinational companies in all sectors could place companies under closer public scrutiny and create more awareness of their tax practices,” the Commission said. It added that the risks of any such disclosures would need to be balanced against the benefits.
The Commission also said that it would attempt to update the EU Code of Conduct on Business Taxation, which sets out the criteria for determining if a tax regime is harmful or not. “Recent cases have highlighted limitations in the scope of the Code and weaknesses in the mandate of the Code of Conduct Group. For example, in the debate on whether 3 Member States’ patent boxes were harmful or not, the Group was initially unable to reach a decision, due to the fact that the criteria in the Code were inadequate to evaluate this modern type of tax incentive,” the Commission proposal said.
In addition, the Commission said it would explore how to better quantify the level of tax evasion and avoidance in the EU, to better target policy measures to counter these problems.
The Commission also intends to present an “Action Plan on Corporate Taxation” in the next few months which will include a re-launch of the EU Common Consolidated Corporate Tax Base proposal and ideas for integrating OECD/G20 actions to combat base erosion and profit shifting into EU law.
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