The European Commission presented on 18 March a package of tax transparency measures as part of an ambitious agenda to tackle corporate tax avoidance and harmful tax competition in the EU. A key element of this Tax Transparency Package is a proposal to introduce the automatic exchange of information between Member States on their tax rulings.
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Corporate tax avoidance is thought to deprive EU Member States’ public budgets of billions of euros a year. It also undermines fair burden-sharing among tax-payers and fair competition between businesses. Companies rely on the complexity of tax rules and the lack of cooperation between Member States to shift profits and minimise their taxes. Therefore, boosting transparency and cooperation is vital in the battle against aggressive tax planning and abusive tax practices.
Today’s Tax Transparency Package aims to ensure that Member States are equipped with the information they need to protect their tax bases and effectively target companies that try to escape paying their fair share of taxes.
Transparency on Tax Rulings
The central component of the Transparency Package is a legislative proposal to improve cooperation between Member States in terms on their cross-border tax rulings and it aims to mark the start of a new era of transparency.
Currently, Member States share very little information with one another about their tax rulings. It is at the discretion of the Member State to decide whether a tax ruling might be relevant to another EU country. As a result, Member States are often unaware of cross-border tax rulings issued elsewhere in the EU which may impact their own tax bases. The lack of transparency on tax rulings is being exploited by certain companies in order to artificially reduce their tax contribution.
To redress this situation, the Commission proposes to remove this margin for discretion and interpretation. Member States will now be required to automatically exchange information on their tax rulings. The Commission proposes to set a strict timeline: every three months, national tax authorities will have to send a short report to all other Member States on all cross-border tax rulings that they have issued. Member States will then be able to ask for more detailed information on a particular ruling.
The automatic exchange of information on tax rulings will enable Member States to detect certain abusive tax practices by companies and take the necessary action in response. Moreover, it should also encourage healthier tax competition, as tax authorities will be less likely to offer selective tax treatment to companies once this is open to scrutiny by their peers.
Other Tax Transparency initiatives
This Package also contains a communication outlining a number of other initiatives to advance the tax transparency agenda in the EU. These are:
- Assessing possible new transparency requirements for multinationals
The Commission will examine the feasibility of new transparency requirements for companies, such as the public disclosure of certain tax information by multinationals. The objectives, benefits and risks of any such initiative need to be carefully considered. Therefore, the Commission will assess the impact of possible additional transparency requirements to help inform a decision at a later stage.
- Reviewing the Code of Conduct on Business Taxation
The Code of Conduct on Business Taxation is one of the EU’s main tools for ensuring fair corporate tax competition. It sets out the criteria that determine whether a tax regime is harmful or not and it requires Member States to abolish any harmful tax measures that go against the Code. Member States meet regularly to assess their compliance with the Code. But over the past years, the Code has become less effective in addressing harmful tax regimes as its criteria do not take into account more sophisticated corporate tax avoidance schemes. The Commission will therefore work with Member States to review the Code of Conduct as well as the mandate of the Code of Conduct Group in order to make it more effective in ensuring fair and transparent tax competition within the EU.
- Quantifying the scale of tax evasion and avoidance
The Commission, along with Eurostat, will work with Member States to see how a reliable estimate of the level of tax evasion and avoidance can be reached. There is growing evidence that evasion and avoidance are pervasive and cause significant revenue losses. However, a precise quantification of the scale and impact of these problems has not been determined up to now. Reliable statistics of the scale and impact of these problems would help to better target policy measures against them.
- Repealing the Savings Tax Directive
The Commission is proposing to repeal the Savings Tax Directive, as this text has since been overtaken by more ambitious EU legislation, which requires the widest scope of automatic information exchange on financial accounts, including savings related income. Repealing the Saving Tax Directive will create a streamlined framework for the automatic exchange of financial information and will prevent any legal uncertainty or extra administration for tax authorities and businesses.
Next Steps
The two legislative proposals of this package will be submitted to the European Parliament for consultation and to the Council for adoption. Member States should agree on the Tax Rulings proposal by the end of 2015, so that it can enter into force on 1 January 2016. Given that the European Council in December 2014 called on the Commission to make this proposal, full political commitment on reaching a timely agreement should be expected.
The next milestone will be an Action Plan on Corporate Taxation which will be presented before the summer. This second Action Plan will focus on measures to make corporate taxation fairer and more efficient within the Single Market, including a re-launch of the Common Consolidated Corporate Tax Base (CCCTB) and ideas for integrating new OECD/G20 actions to combat base erosion and profit shifting (BEPS) at EU level.
Further information
Communication on tax transparency to fight tax evasion and avoidance COM(2015) 136 final
