Explanatory Memorandum to COM(2015)135 - Amendment of Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2015)135 - Amendment of Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation. |
|---|---|
| source | COM(2015)135  |
| date | 18-03-2015 |
Businesses have traditionally viewed tax planning as legitimate on the grounds that they use legal arrangements to reduce their tax liabilities. However, tax planning has become more elaborate in recent years, developing across jurisdictions and shifting taxable profits towards states with beneficial tax regimes. This 'aggressive' form of tax planning can take a multitude of forms, such as taking advantage of the technicalities of a tax system or of mismatches between two or more tax systems for the purpose of reducing or avoiding tax liabilities. Its consequences include double deductions (e.g. the same expense is deducted in both the state of source and the state of residence) and double non-taxation (e.g. income is not taxed in either its state of source or in the recipient’s state of residence).[1] Such practices are in many cases assisted by the rulings issued by national administrations, which confirm to a company how a specific transaction will be taxed under existing legislation and therefore provide legal certainty for the structure put in place. Even though Member States are obliged to ensure that they issue tax rulings in compliance with existing EU and national law, a lack of transparency regarding such rulings may impact on other countries which have links with the beneficiaries of the rulings.
Tax avoidance, as well as tax fraud and tax evasion, have an important cross-border dimension. Globalisation and the increasing mobility of taxpayers can make it difficult for Member States to assess tax bases properly. This phenomenon can affect the functioning of taxation systems and entail tax avoidance and tax evasion and thus jeopardise the functioning of the Internal Market.
Therefore Member States can only address this problem effectively if they agree to take common action. For this reason, improving administrative cooperation between Member States' tax administrations is a key objective of the Commission's strategy.
Council Directive 2011/16/EU was adopted to replace an earlier Directive dealing with assistance between Member States (Council Directive 77/799/EEC), as a response to Member States’ need for enhanced administrative cooperation in the field of taxation.
The purpose of the present proposal is to ensure that Directive 2011/16/EU provides for comprehensive and effective administrative co-operation between tax administrations by providing for the mandatory automatic exchange of information regarding advance cross-border rulings and advance pricing arrangements, a particular type of advance cross border ruling used in the area of transfer pricing. Tax driven structures which lead to a low level of taxation of income in the Member State issuing the ruling may leave only low amounts of income to be taxed in other Member States involved thus eroding their tax bases.
The proposal requires Member States to automatically exchange basic information about advance cross-border rulings and advance pricing arrangements with all other Member States. This is based on the principle that it is other Member States which are best placed to assess the potential impact and relevance of such rulings, rather than the Member State giving the ruling. In appropriate cases the Member States receiving the information can request further more detailed information.
The proposal has been specifically designed to allow the automatic information exchange on rulings to build on the existing rules in Directive 2011/16/EU relating to the practical arrangements for exchanging information including the use of standard forms. It is also in line with international developments at the level of the OECD and its work on BEPS.
During 2012, the Code of Conduct Group for Business Taxation reviewed developments in Member States’ procedures regarding tax rulings. The Group identified the types of cross-border rulings on which information should be exchanged spontaneously and recommended the development of a 'Model Instruction' that could be used as a reference by the Member States for internal application.[3] The Model Instruction specified that information on cross-border rulings should be sent spontaneously in accordance with Article 9 of Directive 2011/16/EU, using standard electronic forms, by the electronic means provided for in the Directive, at the latest one month after the ruling is issued in line with the deadline in Article 10 of the Directive. It also required Member States to ensure proper communication channels on this subject between Member States and good quality training and guidance for those issuing rulings. It also provided guidance on the content of the information to be provided spontaneously. However, this Model Instruction is not legally binding. There is, in practice, little information exchange between Member States on their advance tax rulings or transfer pricing arrangements even where these have an impact on other countries.
Therefore a more systematic and binding approach to information exchange on rulings appears necessary within the EU so as to ensure that, where one Member State issues an advance tax ruling or transfer pricing arrangement, any other Member State affected is in a position to take any necessary corresponding action.
The Commission committed to making such a proposal for the automatic exchange of information on cross-border rulings on 16 December 2014 and this is reflected in the Commission's 2015 Work Programme.[4]
Contents
- RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- 1.1. General context
- 2.1. Consultations in the context of the Action Plan on tax fraud and tax evasion and of the Recommendations (COM (2012) 722) and other fora
- 2.2. Member States
- 2.3. Subsidiarity and Proportionality
- 2.4. Staff Working Document
2.1. Consultations in the context of the Action Plan on tax fraud and tax evasion and of the Recommendations (COM (2012) 722) and other fora
The European Parliament adopted a resolution on 21 May 2013,[5] whereby it welcomed the Commission's Action Plan and its Recommendations, urged Member States to follow up their commitments and embrace the Action Plan, and emphasised that the EU should take a leading role in global discussions on the fight against tax fraud, tax avoidance and tax havens, in particular in relation to promoting the exchange of information.
The European Economic and Social Committee adopted an opinion on 17 April 2013.[6] The Committee endorsed the Commission's Action Plan and supported its efforts to find practical solutions aimed at reducing tax fraud and tax evasion.
Over recent years, Member States have worked in the Code of Conduct Group to improve the exchange of information regarding cross-border rulings and in the area of transfer pricing. Conclusions of this Code of Conduct Group have been communicated to the Council on a regular basis in the form of reports.[7]
This Directive is based on the Model Instruction agreed among the Member States in 2014 and therefore reflects work already done by Member States’ delegates in several European fora. Member States have been discussing the principle of information exchange on tax rulings for some time; however this has not so far led to an effective framework for such an exchange.
This proposal complies with the principles of Subsidiarity and Proportionality as set out in Article 5, paragraphs 3 and 4, respectively, of the Treaty on European Union.
Article 115 TFEU provides for the approximation of such laws, regulations or administrative provisions of the Member States which directly affect the establishment or functioning of the internal market and make the approximation of laws necessary.
The objective of ensuring that all Member States have sufficient information on advance CBRs and APAs cannot be sufficiently achieved through non-coordinated action implemented by each Member State individually. Thus, the exchange of information on rulings that potentially affect the tax bases of more than one Member State requires a common and compulsory approach. Moreover, the cross-border element is inherent in the proposed action. Effective information on advance cross-border rulings and advance pricing arrangements can therefore only be achieved through action at Union level.
While the Model Instruction may be regarded as improving matters, a legislative basis is regarded as more effective. Moreover, as long as the issuing Member State is the one having to assess, based on its own legal framework, the relevance of a given ruling for other Member States, a lack of transparency will remain. Taxpayers may take advantage of the absence of common rules for the exchange of information to set up structures that shift profits to low-tax countries, which may not be the countries where economic activities generating the profits are performed and where value is created. [8] As tax rulings are often granted for cross-border structures, Member States depend on each other to get the complete picture. For this reason Member States working together are in a better position than each Member State acting individually to ensure the effectiveness and completeness of the system of exchange of information on tax rulings. A harmonized EU approach would be more effective to ensure tax transparency and cooperation between tax administrations in fighting tax avoidance.
The specific problem identified as the object of a policy response is the lack of transparency on tax rulings with cross-border relevance, which has negative effects, notably on the proper functioning of the Internal Market. The policy response is limited to addressing the rulings with a cross-border element. It consists of a two-step approach according to which a basic set of information as defined in the Directive would have to be provided to all EU Member States. The information to be shared has to strike the balance between being on the one hand as concise as possible and on the other hand providing sufficient information for the receiving Member State to judge whether it should request more information. In a second step, those Member States that can demonstrate that the information is foreseeably relevant to them can request more detailed information under the existing provisions of the Directive. Thus, the proposal represents the most proportionate answer to the identified problem because it limits itself to advance tax rulings and advance pricing arrangements with a cross-border element. It is also based on the automatic exchange of basic information intended to allow each Member State to determine whether further more detailed information should be requested. The proposed amendments consequently do not go beyond what is necessary to address the issues at stake and, in that way, to achieve the Treaties' objectives of a proper and effective functioning of the Internal Market.
The accompanying Staff Working Document evaluates the policy options on the basis of the criteria of effectiveness, efficiency, coherence and social impacts and fundamental rights. An analysis of options has been prepared by the Commission to support the policy option chosen.
The objective of this proposal is to ensure that information on advance cross-border rulings and advance pricing arrangements is automatically exchanged between Member States when the conditions laid down in the new Article 8a are fulfilled.
For this purpose, the proposal modifies Directive 2011/16/EU as amended by Directive 2014/107/EU[9] by introducing a specific requirement for the automatic exchange of information on advance cross-border rulings and advance pricing arrangements.
In particular, Article 1 of the proposed Directive inserts a new Article 8a into the existing Directive, which sets out the scope and conditions for the mandatory automatic exchange of information on types of tax rulings and transfer pricing arrangements as defined in the proposed Directive, inserted by Article 1 of the proposal. Article 8a provides that the competent authorities of a Member State shall, by automatic exchange, communicate information about defined tax rulings that they issue or amend to the competent authorities of all other Member States. This obligation is extended to rulings issued in the ten years before the date on which the proposed Directive takes effect that are still valid on the date of entry into force of the Directive (Article 8a(2)).
Article 1 i of the proposed Directive enables the possible creation by the Commission of a secure central directory concerning information communicated in the framework of this proposal. This central directory would both facilitate the exchange of information and support Member States in their job of studying and reacting to rulings exchanged between Member States.
The proposed Directive also updates the rules in the 2011 Directive concerning the provision of feedback, the practical arrangements for information exchange and the evaluation of the administrative cooperation so as to extend them to the automatic information exchange on advance cross-border rulings and advance pricing arrangements.
The subject-matter of these modifications falls within the same legal basis as Directive 2011/16/EU, i.e. Article 115 of the Treaty on the Functioning of the European Union (TFEU), which aims to ensure the proper functioning of the Internal Market.
The impact of the proposal on the EU Budget is presented in the financial statement accompanying the proposal, and will be met within available resources. The costs of the additional IT tools and the possible central directory that the Commission may develop in the future to facilitate the communication of information between Member States as well as to provide for its storage would be funded out of the FISCALIS 2020 programme provided for in Regulation (EU) 1286/2013 which provides financial support for activities to improve administrative cooperation between tax authorities in the EU.