EU: Tax policy tops EU Commission agenda for 2015
Bob van der Made
When it presented its annual Commission Work Programme for 2015 on December 16 2014, the European Commission (EC) stated that it would also clamp down on tax evasion and tax avoidance to ensure that taxes are paid in the country where profits are generated. Initially, the Juncker Commission's priorities focused heavily on the theme of 'jobs and growth'. However, under pressure from the European Parliament and media reports in the third quarter of 2014, the Commission has made the fight against tax evasion and avoidance one of its top political priorities for 2015. A number of important legislative and non-legislative EC initiatives have therefore been rolled out from March onwards.
EC 'transparency package', including mandatory automatic exchange of cross-border tax rulings in the EU
On March 18 2015, the EC published a new 'tax transparency package' consisting of three elements.
First, and most important, a legislative proposal for the mandatory automatic exchange of information (AEoI) on cross-border tax rulings within the EU, through amendments to the Directive on Administrative Cooperation. That directive already obliges member states to 'spontaneously' exchange tax rulings which are foreseeably relevant to tax administrations and collection in any relevant other member state. In practice this is not done, however, as member states can find ways to circumvent the imprecise wording of the directive. Under the proposed directive, tax authorities would have to share a pre-defined set of information on all of their advance cross-border tax rulings with all other member states, on a quarterly basis and following a standard format, which is to include:
Name of taxpayer and group (where this applies);
A description of the issues addressed in the tax ruling;
A description of the criteria used to determine an advance pricing arrangement;
Identification of the member state(s) most likely to be affected; and
Identification of any other taxpayer likely to be affected (apart from natural persons).
To avoid divergent interpretations of what constitutes a 'tax ruling', which could enable some member states to circumvent the new information exchange obligations, the EC has included a very wide definition of the term in the proposal: "[a tax ruling is] any communication or other instrument or action of similar effect, given by or on behalf of a member state, regarding the interpretation or application of its tax laws".
The Commission proposal therefore covers all advance cross-border tax rulings and all advance pricing arrangements which member states issue to companies and other entities. In addition to automatically exchanging information on any future tax rulings, EU member states would also be obliged to do so on any cross-border tax ruling issued since 2005.
Purely domestic tax rulings would be exempt.
If adopted, the directive would no longer allow the current degree of discretion to member states for the spontaneous exchange of cross-border tax rulings. The Commission calls on member states to agree on the proposal by the end of 2015, so that it can enter into force on January 1 2016, but the member states will need to reach unanimity in Council.
The Commission's EU State aid legal investigations into tax rulings are not affected by this proposal, which is part of the Commission's policy agenda to tackle corporate tax avoidance and harmful tax competition in the EU.
Secondly, the Commission issued a communication outlining the further legislative and non-legislative elements under the tax transparency package for the months to come:
Assessing possible new transparency requirements for multinationals;
Reviewing the Code of Conduct on Business Taxation;
Quantifying the scale of tax evasion and avoidance;
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.
A third element of the transparency package is an EC legislative proposal to repeal the EU Savings Directive. There are two EU directives covering similar types of income. This duplication under both the EU Savings Directive and the revised DAC (directive on administrative cooperation on direct taxation) adopted in December 2014 will need to end. The latter directive (DAC2) is wider in scope and incorporates the OECD's common reporting standard (CRS).
Other initiatives expected for the coming months
It seems increasingly likely that the commission will announce the splitting up in three parts of the stalled commission draft (optional) CCCTB directive. The Commission is also expected to change the name of the 'new' draft directive. Given the many negative connotations the CCCTB acronym has in the meantime, and in accordance with the essence of its three-pronged plan, the moniker could be changed to BBC: base, BEPS and consolidation. The 'base' part may then become mandatory which may be unlikely to lead to unanimity in council and the directive may therefore end up ultimately in the enhanced cooperation procedure.
A two-way splitting-up of the proposed revision of the EU's Interest and Royalties Directive (I&RD) is now also very likely (similar to the Parent-Subsidiary Directive last year). As a first step, the Commission would want the member states to incorporate an 'aggressive tax planning or general anti-abuse rule (GAAR) clause per its December 2012 anti-tax fraud and tax evasion action plan. Part two of the revision would deal with the other difficult issues of the I&RD, but this second step might even be overtaken by the OECD/G20 BEPS initiative.
The June 2015 Ecofin Council and European summit are expected to be "full of tax".
Bob van der Made (email@example.com)
PwC EU Brussels-Amsterdam
Tel: +31 88 792 3696