On 18 March 2015 the European Commission issued a range of measures aimed at tacking corporate tax avoidance and harmful tax competition. Corporate tax avoidance distorts economic decisions and prevents fair competition. The complexity of tax rules and the failure of member states to cooperate combine to offer opportunities for aggressive tax planning. More transparency and cooperation between member states is therefore an important factor in combating aggressive tax planning and avoidance.
Automatic exchange of information on cross-border tax rulings
An important part of the package is the proposal for automatic exchange of information among EU member states in relation to tax rulings. This will allow member states to obtain the necessary information to deal with companies that engage in aggressive tax avoidance.
The package contains a legislative proposal for better cooperation between the member states on cross-border tax rulings. The exchange of this information is currently at the discretion of the member state which decides whether the information is relevant to another EU state. The consequence is that member states may not know about cross-border tax rulings of other member states that affect their own tax base and this may give opportunities for some taxpayers to engage in artificial tax avoidance.
The European Commission’s legislative proposal would therefore remove the margin for the exercise of discretion by member states in exchanging information on cross border tax rulings. They would be required to automatically exchange information on rulings within a strict timeline that involves sending a report every three months to other member states on all the cross-border tax rulings issued. Member states would also have the right to request more details on any particular tax ruling.
Another consequence of this provision is that member states would be less likely to offer selective tax treatment to particular companies if they know that the information is open to scrutiny by other member states.
Further initiatives
There are a number of other initiatives included in the communication issued by the European Commission. These initiatives include:
- Examining the feasibility of new transparency requirements for companies, for example the public disclosure of certain tax information;
- A review of the code of conduct on business taxation that sets out the criteria to determine if a tax regime is harmful to make it more effective, for example by taking into account more sophisticated tax avoidance schemes;
- Quantifying the scale of tax evasion and avoidance by working with Eurostat and member states to reach a reliable estimate of the level of tax evasion and avoidance; and
- Repealing the savings tax directive as this has been overtaken by more ambitious legislation requiring a wide scope of automatic information exchange on financial accounts including savings related income.
The legislative proposals will go to the European Parliament for consultation and then to the Council of the EU for adoption. The member states should agree on the proposal for exchange of information on tax rulings by the end of 2015 to enable the proposal to enter into force on 1 January 2016.
Later in 2015 an Action Plan on Corporate Taxation will be presented, containing measures to make corporate taxation fairer and more effective; re-launching the Common Consolidated Corporate Tax Base (CCCTB) and putting forward ideas for integrating recommendations of the OECD/ G20 action plan on base erosion and profit shifting (BEPS) at the EU level.
