The European Commission have made the fight for tax evasion and avoidance one of its top political agendas in 2015. Among the many tax transparency initiatives taken by the EU is the proposed automatic exchange of tax rulings between EU member states.
More specifically, the European Commission aims for a mandatory Automatic Exchange of Information (AEoI), on cross border tax rulings within the EU. Currently, EU member states are only required to " "spontaneously" exchange tax rulings which they consider relevant to the tax administration and collections in the relevant State whereas under the proposed Directive, the tax authorities would have to share predefined more stringent information on all cross border tax rulings across all States, following a standard format every quarter and done systematically.
To avoid any vagueness in interpretation and the requirements being circumvented, the EC has issued a very wide definition of the proposed term of what "a tax ruling is" namely "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". For Rulings and Advanced Private Arrangements (APAs) that have been issued within the last ten years but are still valid on the date of entry into force of the Proposal, the information will be exchanged before December 31st 2016.
The aim is to keep the administrative burden to a minimum, while still ensuring that Member States have enough information to assess whether a tax ruling may be relevant to them. This would enable the Recipient Member States to request more detailed information on a particular tax ruling if they believe that it is relevant to their own taxation rules.
The EU Commission will then devise a central database where tax information may be recorded and centralised for the benefit of all Member States, enabling easy detection of abusive tax practices and tax evasion.
The objective of this proposed Directive for AEoI is to define clear, transparent and unequivocal rules on what information Member States must share with other States and in the defined timely manner and format
With the enforcement of a blanket application of AEoI, this will ensure clarity and transparency among every Member State, knowing exactly what cross-border tax rulings apply across the European Union, protecting their tax systems and safeguarding tax evasion across Europe.
As French Commissioner Pierre Moscovici stated, fighting tax avoidance is a matter of fairness. "In these conditions it's unacceptable that some companies refuse to pay their fair share of taxes and exploit mechanisms to avoid paying taxes or minimise their taxes", however NGO's working for tax justice and transparency, still feel there is a long way to go before we reach "transparency" and that Corporate tax evasion continues to deprive EU Member States of billions of Euros every year. This is clearly a significant step to an ongoing initiative.
Pending the unanimous approval by the Council and the enforcement of the Proposal by the end of 2015, the amended Directive will be applicable as of January 1st 2016 and will cover all Tax Rulings and APAs that have been issued as from and including 2005.
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