On 6 October 2015, the Council of the European Union reached agreement on a proposal for a Council Directive (‘the New Directive’) amending Directive 2011/16/EU (Directive on administrative cooperation between Member States) and requiring automatic exchange of information on ‘advance tax rulings’ (‘Tax Rulings’) and ‘advance pricing arrangements’ (‘APAs’) between EU Member States (‘MSs’) and, subject to limitations, to the EU Commission.
The New Directive is one of the results of the EU’s efforts to combat tax avoidance and aggressive tax planning. On 18 March 2015, the EU Commission launched the Transparency Package, which contained a number of initiatives to help MSs protect their tax base and which also included a proposal for automatic exchange of information on Tax Rulings and APAs. The New Directive is the political outcome of the discussion on the EU Commission’s proposal. The New Directive is also largely in line with the recommendations on automatic exchange of information of tax rulings that were made as part of Action 5 (Countering Harmful Tax Practices) of the OECD/G20 BEPS project and that were released on 5 October 2015.
The New Directive requires MSs to automatically exchange information on Tax Rulings and APAs that are issued on or after 1 January 2017. In addition, information on Tax Rulings and APAs issued, amended or renewed between 1 January 2012 and 31 December 2013 will be subject to information exchange, provided that they are still valid on 1 January 2014 (i.e., a five year look-back period instead of the ten year look-back foreseen in the proposal of the EU Commission). Information on Tax Rulings and APAs that were issued, amended or renewed after 1 January 2014 will be subject to information exchange, irrespective of whether they are still valid on 1 January 2017. MSs can choose not to exchange information on Tax Rulings and APAs issued, amended or renewed before 1 April 2016 if the Tax Ruling or APA relates to a group that had an annual turnover of less than €40 million in the year preceding the issuance, amendment or renewal of the Tax Ruling or APA (that is, small and medium-sized enterprises). This exemption will not apply to companies engaged in financial or investment activities.
The terms Tax Ruling and APA are very broadly defined as any agreement, communication, or any other instrument or action with similar effects, including agreements reached in audits, that can be relied upon by taxpayers. Tax Rulings deal with the interpretation or application of a legal or administrative tax provision to a cross-border transaction or with the question whether or not activities give rise to a permanent establishment in another Member State and are made in advance of the transaction or the filing of the tax return covering the period in which the transaction takes place. APAs establish an appropriate set of criteria for the determination of the transfer pricing of cross-border transactions between associated enterprises or the attribution of profits to a permanent establishment. The scope of the above definitions means that not only rulings and APAs in the traditional meaning of these terms will be covered by the New Directive, but also a vast array of other agreements between taxpayers and tax administrators for dealing with the tax affairs of multinational enterprises.
Besides certain basic information, such as the identity of the taxpayers involved, the date of issuance, the start date and the period of validity of the Tax Ruling or APA, the information to be exchanged also comprises more substantive information. Examples of such substantive information include a description of the transactions covered, the transaction amount, the method and the set of criteria used for the determination of the transfer pricing or the transfer price itself and the identification of other MSs likely to be concerned and the identification of taxpayers in those states likely to be affected by the Tax Ruling or APA. The description of the transactions covered in the Tax Ruling or APA may be drafted in abstract terms that do not lead to the disclosure of commercial, industrial or professional secrets, or be contrary to public policy. The EU Commission is responsible for developing standard formats to report information on Tax Rulings and APAs as well as a central database accessible for MSs. Information must generally be submitted within three months after the end of each half calendar year. Information on pre-1 January 2017 Tax Rulings and APAs must be submitted before 1 January 2018. MSs may request additional information, including the full text of the Tax Ruling or APA, under the normal procedures for information exchange upon request provided for in Directive 2011/16/EU.
Information on bilateral or multilateral APAs with non-MSs will not be subject to automatic exchange of information if this is prohibited under the international tax agreement pursuant to which the APA was negotiated. In that case, however, the basic information referred to above does need to be exchanged, to the extent that it was included in the request that led to the bilateral or multilateral APA.
The EU Commission itself will not have access to information on the identity of the taxpayers involved, the summary of the content of the Tax Rulings and APAs, including a description of the transactions covered, the description of the set of criteria used for the determination of the transfer pricing or the transfer price itself and the identification of the taxpayers in other MSs likely to be affected by the Tax Ruling or APA. It will, however, have access to all other information. The EU Commission may only use the information to which it has access to assess MSs’ compliance with the New Directive. It is not permitted to use such information for other purposes, such as for state aid investigations.
Before the New Directive can be formally adopted by the EU Council, the European Parliament must give its opinion. Following the adoption of the New Directive by the EU Council, MSs must implement the New Directive in their national laws before 1 January 2017.