In order to accommodate new initiatives of the Union in the field of tax transparency, Council Directive 2011/16/EU (3) has been the subject of a series of amendments over recent years. Those changes mainly introduced reporting obligations, followed by a communication to other Member States, related to financial accounts, advance cross-border rulings and advance pricing arrangements, country-by-country reports and reportable cross-border arrangements. Those amendments thus extended the scope of the automatic exchange of information. The tax authorities of Member States now have a broader set of cooperation tools at their disposal, to detect and tackle forms of tax fraud, tax evasion and tax avoidance.
(2)
In recent years, the Commission has been monitoring the application, and, in 2019, completed an evaluation, of Directive 2011/16/EU. While significant improvements have been made in the field of automatic exchange of information, there is still a need to improve provisions that relate to all forms of exchanges of information and administrative cooperation.
(3)
Pursuant to Article 5 of Directive 2011/16/EU, the requested authority is to communicate to the requesting authority any information it has in its possession, or that it obtains as a result of administrative enquiries, which is foreseeably relevant to the administration and enforcement of the domestic laws of Member States concerning the taxes falling within the scope of that Directive. To ensure the effectiveness of the exchanges of information and to prevent unjustified refusals of requests, as well as to provide legal certainty for both tax administrations and taxpayers, the internationally agreed standard of foreseeable relevance should be clearly delineated and codified.
(4)
There is sometimes a need for addressing requests for information that concern groups of taxpayers who cannot be identified individually and the foreseeable relevance of the requested information can rather only be described on the basis of a common set of characteristics. Considering this, tax administrations should continue using group requests for information under a clear legal framework.
(5)
It is important that Member States exchange information related to income derived from intellectual property, as this area of the economy is prone to profit shifting arrangements due to its highly mobile underlying assets. Therefore, royalties as defined in point (b) of Article 2 of Council Directive 2003/49/EC (4) should be included in the categories of income subject to mandatory automatic exchange of information in order to strenghten the fight against tax fraud, tax evasion and tax avoidance. Member States should make every possible and reasonable effort to include the tax identification number (TIN) of residents issued by the Member State of residence in the communication of the categories of income and capital subject to mandatory automatic exchange of information.
(6)
The digitalisation of the economy has been growing rapidly over recent years. This has given rise to an increasing number of complex situations linked to tax fraud, tax evasion and tax avoidance. The cross-border dimension of services offered through the use of platform operators has created a complex environment where it can be challenging to enforce tax rules and ensure tax compliance. There is a lack of tax compliance and the value of unreported income is significant. Tax administrations of Member States have insufficient information to correctly assess and control gross income earned in their country from commercial activities performed with the intermediation of digital platforms. This is particularly problematic where the income or taxable amount flows via digital platforms established in another jurisdiction.
(7)
Tax administrations frequently request information from platform operators. This causes platform operators significant administrative and compliance costs. At the same time, some Member States have imposed a unilateral reporting obligation, which creates an additional administrative burden for platform operators, as they have to comply with many national standards of reporting. It is therefore essential to introduce a standardised reporting requirement which would apply across the internal market.
(8)
Considering that most of the income or taxable amounts of the sellers on digital platforms flow cross-border, the reporting of information related to the relevant activity would bring additional positive results if that information were also communicated to the Member States that would be eligible for taxing the earned income. In particular, the automatic exchange of information between tax authorities is crucial in order to provide those tax authorities with the necessary information to enable them to assess income taxes and value added tax (VAT) due correctly.
(9)
To ensure the proper functioning of the internal market, the reporting rules should be both effective and simple. Recognising the difficulties in detecting taxable events that occur while performing a commercial activity which is facilitated through digital platforms and also taking account of the additional administrative burden that tax administrations would face in such cases, it is necessary to impose a reporting obligation on platform operators. The platform operators are better placed to collect and verify the necessary information on all sellers operating on and making use of a specific digital platform.
(10)
The reporting obligation should cover both cross-border and non-cross-border activities, in order to ensure the effectiveness of the reporting rules, the proper functioning of the internal market, a level playing field and the principle of non-discrimination. In addition, such an application of the reporting rules would reduce the administrative burden on the digital platforms.
(11)
Given the wide use of digital platforms in performing commercial activities, both by individuals and entities, it is crucial to ensure that the reporting obligation applies regardless of the legal nature of the seller. Nevertheless, an exception should be provided for governmental entities, which should not be subject to the reporting obligation.
(12)
The reporting of income earned through such activities should provide tax administrations with comprehensive information necessary for correctly assessing the income tax due.
(13)
For the sake of simplification and mitigation of compliance costs, it would be reasonable to require platform operators to report income earned by the sellers through the use of the digital platform in one single Member State.
(14)
Given the nature and flexibility of digital platforms, the reporting obligation should also extend to those platform operators that perform commercial activity in the Union but are neither resident for tax purposes, nor incorporated or managed, or have a permanent establishment in a Member State (‘foreign platform operators’). This would ensure a level playing field among all digital platforms and prevent unfair competition. In order to facilitate achieving this objective, foreign platform operators should be required to register and report in one single Member State for the purpose of operating in the internal market. After revoking a registration of a foreign platform operator, Member States should ensure that such foreign platform operator is required to provide to the Member State concerned appropriate assurances, such as affidavits or security deposits, while re-registering in the Union.
(15)
Nevertheless, it is appropriate to lay down measures that would reduce administrative burden on foreign platform operators and tax authorities of Member States, in cases where adequate arrangements exist, ensuring that equivalent information is exchanged between a non-Union jurisdiction and a Member State. In those cases, it would be appropriate to relieve platform operators that reported in a non-Union jurisdiction from an obligation to report in a Member State, to the extent that the information received by the Member State relates to the activities in the scope of this Directive and the information is equivalent to the information required under the reporting rules set out in this Directive. In order to foster administrative cooperation in this field with non-Union jurisdictions and recognising the need for flexibility in the negotiations of agreements between Member States and non-Union jurisdictions, this Directive should allow a qualified platform operator of a non-Union jurisdiction to solely report equivalent information on reportable sellers to the tax authorities of a non-Union jurisdiction, which, in turn, would send such information to the tax administrations of Member States. Wherever appropriate, this mechanism should be enabled in order to prevent equivalent information from being reported and transmitted more than once.
(16)
In view of the fact that tax authorities worldwide are confronted with the challenges linked to the ever growing digital platform economy, the Organisation for Economic Cooperation and Development (OECD) has developed Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy (‘Model Rules’). Given the prevalence of cross-border activities that are carried out by digital platforms as well as the sellers active on them, it can reasonably be expected that non-Union jurisdictions will have sufficient incentives to follow the leading example of the Union and implement the collection and mutual automatic exchange of information on reportable sellers according to the Model Rules. Although not identical to the scope of this Directive in terms of the sellers on which information must be reported and the digital platforms by which information must be reported, the Model Rules are expected to provide for the reporting of equivalent information in relation to relevant activities that are in scope of both this Directive and the Model Rules, which may be expanded further to cover additional relevant activities.
(17)
In order to ensure uniform conditions for the implementation of this Directive, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (5). More specifically, the Commission should, by means of implementing acts, determine whether information required to be exchanged pursuant to an agreement between the competent authorities of a Member State and a non-Union jurisdiction is equivalent to that specified in this Directive. Given that the conclusion of agreements with non-Union jurisdictions on administrative cooperation in the area of taxation remains within the competence of Member States, the Commission’s action could also be triggered by a request from a Member State. This administrative procedure should, without altering the scope and conditions of this Directive, provide for legal certainty as regards the correlation of the obligations stemming from this Directive and any exchange of information agreements Member States may have with non-Union jurisdictions. For this purpose, it is necessary that, following the request of a Member State, the determination of equivalence could also be made in advance of an envisaged conclusion of such an agreement. Where the exchange of such information is based on a multilateral instrument, the decision on equivalence should be taken in relation to the whole of the relevant framework covered by such an instrument. Nevertheless, it should still remain possible to take the decision on equivalence, where appropriate, concerning a bilateral instrument or the exchange relationship with an individual non-Union jurisdiction.
(18)
For the reasons of preventing tax fraud, tax evasion and tax avoidance, it is appropriate that the reporting of commercial activity includes rental of immovable property, personal services, sale of goods and rental of any mode of transport. Activities carried out by a seller acting as an employee of the platform operator should not fall within the scope of such reporting.
(19)
For reasons of reducing unnecessary compliance costs for sellers that engage in real estate renting, such as hotel chains or tour operators, there should be a threshold of a number of rentals per property listing above which the reporting obligation would not apply. Nevertheless, in order to avoid the risk of circumventing reporting obligations by intermediaries appearing on the digital platforms as a single seller while managing a large number of property units, appropriate safeguards should be introduced.
(20)
The objective of preventing tax fraud, tax evasion and tax avoidance could be ensured by requiring platform operators to report income earned through digital platforms at an early stage, before the tax authorities of Member States carry out their yearly tax assessments. To facilitate the work of tax authorities of Member States, the reported information should be exchanged within one month following the reporting. In order to facilitate the automatic exchange of information and enhance the efficient use of resources, exchanges of information should be carried out electronically through the existing common communication network (CCN) developed by the Union.
(21)
Where foreign platform operators report equivalent information on reportable sellers to the respective tax authorities of non-Union jurisdictions, the effective implementation of due diligence procedures and reporting requirements is expected to be assured by the tax authorities of those jurisdictions. However, in instances where this is not the case, foreign platform operators should be obliged to register and report in the Union, and Member States should enforce the registration, due diligence and reporting obligations of such foreign platform operators. Therefore, Member States should lay down rules on penalties applicable to infringements of national provisions adopted pursuant to this Directive and should take all measures necessary to ensure that they are implemented. While the choice of penalties remains within the discretion of Member States, the penalties provided for should be effective, proportionate and dissuasive. Given that digital platforms often have a wide geographical reach, it is appropriate that Member States endeavour to act in a coordinated manner when aiming at enforcement of compliance with the registration and reporting requirements applicable to digital platforms operating from non-Union jurisdictions, including the prevention of digital platforms from being able to operate within the Union as a last resort. Within the limits of its competence, the Commission should facilitate the coordination of such Member States’ actions, thereby taking into account any future common measures towards digital platforms as well as differences in the potential measures available to Member States.
(22)
It is necessary to strengthen the provisions of Directive 2011/16/EU regarding the presence of officials of one Member State in the territory of another Member State and the carrying out of simultaneous controls by two or more Member States in order to ensure the effective application of those provisions. Therefore, the responses to requests for the presence of officials of another Member State should be provided by the competent authority of the requested Member State within a specified timeframe. Where officials of one Member State are present in the territory of another Member State during an administrative enquiry, or participate in an administrative enquiry through the use of electronic means of communication, they should be subject to the procedural arrangements laid down by the requested Member State to directly interview individuals and examine records.
(23)
A Member State that intends to carry out a simultaneous control should be required to communicate its intention to the other Member States concerned. For reasons of efficiency and legal certainty, it is appropriate to provide that the competent authority of each Member State concerned is obliged to respond within a specified timeframe.
(24)
Multilateral controls carried out with the support of the Fiscalis 2020 programme established by Regulation (EU) No 1286/2013 of the European Parliament and of the Council (6) have demonstrated the benefit of coordinated controls of one or more taxpayers that are of common or complementary interest to the competent authorities of two or more Member States. Such joint actions are currently conducted only on the basis of the combined application of the existing provisions regarding the presence of officials of one Member State in the territory of another Member State and simultaneous controls. However, in many cases that practice has shown that further improvements are needed to ensure legal certainty.
(25)
It is therefore appropriate that Directive 2011/16/EU is supplemented with a number of provisions that further clarify the framework and the main principles that should apply when the competent authorities of Member States choose to resort to the means of a joint audit. Joint audits should be an additional tool available for administrative cooperation among Member States in the area of taxation, which would supplement the existing framework that provides for the possibilities for the presence of officials of another Member State in administrative offices, participation in administrative enquiries as well as simultaneous controls. Joint audits would take the form of administrative enquiries conducted jointly by the competent authorities of two or more Member States, and be linked to one or more persons of common or complementary interest to the competent authorities of those Member States. Joint audits can play an important role in contributing to the better functioning of the internal market. Joint audits should be structured to offer legal certainty to taxpayers through clear procedural rules, including measures to mitigate the risk of double taxation.
(26)
For the purpose of ensuring legal certainty, the provisions of Directive 2011/16/EU as regards joint audits should also contain the main aspects of further details of that tool, such as the specified timeframe for response to a request for a joint audit, the scope of rights and obligations of the officials participating in a joint audit and the process leading to establishment of a final report of a joint audit. Those provisions on joint audits should not be interpreted as prejudging any processes that would take place in a Member State in accordance with its national law as a consequence or a follow-up to the joint audit, such as charging or assessing tax by a decision of tax authorities of Member States, process of appeal or settlement relating thereto or remedies available to taxpayers arising from those processes. In order to ensure legal certainty, the final report of a joint audit should reflect the findings on which the competent authorities concerned agreed. Moreover, the competent authorities concerned could also agree that the final report of a joint audit includes any issues where an agreement could not be reached. The mutually agreed findings of the final report of a joint audit should be taken into account in the relevant instruments issued by the competent authorities of the participating Member States following that joint audit.
(27)
In order to ensure legal certainty, it is appropriate to provide that joint audits should be conducted in a pre-agreed and coordinated manner, and in accordance with the laws and procedural requirements of the Member State where the activities of a joint audit take place. Such requirements may also include an obligation to ensure that officials of a Member State who took part in the joint audit in another Member State, also take part, if required, in any process of complaint, review or appeal in that Member State.
(28)
The rights and obligations of the officials who participate in the joint audit, when they are present in activities performed in a different Member State, should be determined in accordance with the laws of the Member State where the activities of the joint audit take place. At the same time, while complying with the laws of the Member State where the activities of a joint audit take place, officials of another Member State should not exercise any powers that would exceed the scope of the powers granted to them under the laws of their Member State.
(29)
While the objective of the provisions on joint audits is to provide a useful tool for administrative cooperation in the field of taxation, nothing in this Directive should be construed as being contrary to the established rules on cooperation of Member States in judicial matters.
(30)
It is important that, as a matter of principle, the information communicated under Directive 2011/16/EU is used for the assessment, administration and enforcement of taxes which are covered by the material scope of that Directive. While this was not precluded so far, uncertainties regarding the use of information have arisen due to unclear framework. Therefore, and considering the significance that VAT has for the functioning of the internal market, it is appropriate to clarify that information communicated between Member States may also be used for the assessment, administration and enforcement of VAT and other indirect taxes.
(31)
A Member State communicating information to another Member State for tax purposes should permit the use of that information for other purposes in so far as it is allowed under the national law of both Member States. A Member State can do this either by permitting the different use after a mandatory request of the other Member State or by communicating to all Member States a list of allowed other purposes.
(32)
In order to assist tax administrations participating in exchange of information under this Directive, practical arrangements, including where appropriate a joint data controller agreement, a data processor – data controller agreement or models thereof, should be drafted by Member States, assisted by the Commission. Only persons duly accredited by the Security Accreditation Authority of the Commission may have access to the information communicated pursuant to Directive 2011/16/EU and provided by electronic means using the CCN, and only in so far as it is necessary for the care, maintenance and development of the central directory on administrative cooperation in the field of taxation and of the CCN. The Commission is also responsible for ensuring the security of the central directory on administrative cooperation in the field of taxation and of the CCN.
(33)
In order to prevent data breaches and limit potential damage, it is of utmost importance to improve the security of all data, exchanged between the competent authorities of Member States in the framework of Directive 2011/16/EU. Therefore, it is appropriate to supplement that Directive with rules on the procedure to be followed by Member States and the Commission in the event of a data breach in a Member State as well as in the cases when the breach occurs to the CCN. Given the sensitive nature of the data that could be subject to a data breach, it would be appropriate to provide for measures such as requesting the suspension of the exchange of information with the Member State(s) where the data breach occurred, or suspending access to the CCN to one or more Member States until the data breach is remedied. Given the technical nature of the processes related to data exchange, Member States, assisted by the Commission, should agree on the practical arrangements necessary for the implementation of the procedures to be followed in case of a data breach and measures to be taken to prevent future data breaches.
(34)
In order to ensure uniform conditions for the implementation of Directive 2011/16/EU and in particular, for the automatic exchange of information between competent authorities, implementing powers should be conferred on the Commission to adopt a standard form, with a limited number of components, including the linguistic arrangements. Those powers should be exercised in accordance with Regulation (EU) No 182/2011.
(35)
The European Data Protection Supervisor was consulted in accordance with Article 42 of Regulation (EU) 2018/1725 of the European Parliament and of the Council (7).
(36)
Any processing of personal data carried out within the framework of Directive 2011/16/EU should continue to comply with Regulation (EU) 2016/679 of the European Parliament and of the Council (8) and Regulation (EU) 2018/1725. Data processing is set out in Directive 2011/16/EU solely with the objective of serving a general public interest, namely the matters of taxation and the purposes of combating tax fraud, tax evasion and tax avoidance, safeguarding tax revenues and promoting fair taxation, which strengthen opportunities for social, political and economic inclusion in Member States. Therefore, in Directive 2011/16/EU, the references to the relevant Union law on data protection should be updated and extended to the rules introduced by this Directive. This is in particular important for the purpose of ensuring legal certainty for data controllers and data processors within the meaning of Regulations (EU) 2016/679 and (EU) No 2018/1725 while ensuring the protection of the rights of data subjects.
(37)
This Directive respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union. In particular, this Directive seeks to ensure full respect for the right to the protection of personal data and the freedom to conduct business.
(38)
Since the objective of this Directive, namely efficient administrative cooperation between Member States under conditions compatible with the proper functioning of the internal market, cannot be sufficiently achieved by the Member States because the aim of this Directive to improve the cooperation between tax administrations requires uniform rules that can be effective in cross-border situations but can rather, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective.
(39)
Directive 2011/16/EU should therefore be amended accordingly,
