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The EU Directive for the automatic exchange of Tax Rulings

  • By:Corrieri Cilia Legal
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On 8 December 2015, the Economic and Financial Affairs Council of the European Union (ECOFIN) formally adopted amendments to the EU Directive on Administrative Co-operation in the field of direct taxation which introduce the mandatory automatic exchange of information in relation to tax rulings[1] (amended Directive). This amended Directive had to be implemented in the Member States’ national legislation by the end of 2016 and is applicable as of 1 January 2017.

The amended Directive broadly defines a ‘ruling’ in order to cover all the different interpretations given by the Member States on what constitutes a tax ruling. Hence it incorporates both cross-border tax ruling and advance pricing arrangements (hereinafter ‘APAs’). A cross-border tax ruling, is in substance, an assurance or confirmation that tax authorities give to taxpayers (companies in particular) on how certain aspects of taxation will be applicable to them. On the other hand, an APA is a particular type of tax ruling issued by the tax authorities to determine the method and other relevant details of pricing to be applied to the transfer of goods or services between associated companies.

The amended Directive requires Member States to automatically exchange basic information about advance cross-border rulings and APAs with all other Member States so as to ensure that, where one Member State issues a tax ruling or an APA, any other Member State affected is in a position to monitor the impact on its tax revenue and take any necessary action. The Commission is in the process of developing a secure central directory, where the information exchanged will be stored and made accessible to all Member States.

Although the new rules started to apply as from 1 January 2017, information needs to be exchanged with regards to tax rulings issued before this date in terms of the below specified transitory rules:

  • Where an advance cross-border ruling and advance pricing arrangement has been issued, amended or renewed between 1 January 2012 and 31 December 2013, such rulings shall be exchanged as long as they are still valid on 1 January 2014.
  • Where an advance cross-border ruling and APA which has been issued, amended or renewed between 1 January 2014 and 31 December 2016, such exchange shall take place irrespectively of whether the ruling is still valid or not.

Member states will have the possibility (not an obligation) to exclude from information exchange advance tax rulings and APAs issued to companies with an annual net turnover of less than €40 million at a group level, if such advance cross-border rulings and APAs were issued, amended or renewed before 1 April 2016. However, this exemption will not apply to companies conducting mainly financial or investment activities.

It is worth noting that the amended Directive does not apply to domestic tax rulings which have no consequences for other Member States, and to tax rulings concerning individuals.

The information to be automatically exchanged by Member States must include:

  • Identification of the person (other than a natural person)
  • Summary of the content of the ruling or APA
  • Dates of issuance, amendment or renewal of the ruling or APA
  • Period of validity of the ruling or APA
  • Identification of the other Member State or any other person (not being a natural person), if any, likely to be affected by the ruling or APA

If upon receipt of the exchanged information a member state is interested in further information on the tax ruling, in terms of the amended Directive such Member State may request further information from the Member State that issued the tax ruling. However, in both exchanges the summary of the content of the tax ruling provided by the Member State cannot lead to the disclosure of a commercial, industrial or professional secret or of a commercial process, or of information whose disclosure would be contrary to public policy.

The amended Directive is therefore expected to reduce the possibilities for aggressive tax planning and corporate tax avoidance, to increase transparency in cross-border corporate taxation practices, and to ensure a level playing field for all companies. Moreover, the amended Directive is in line with developments within the OECD and its work on tax base erosion and profit shifting.

[1] Amending the EU Directive on Administrative Co-operation in the field of direct taxation (2011/16/EU), amended by Council Directive 2014/107/EU

Posted in: International Taxation