On 6 October 2015 the Economic and Financial Affairs Council is expected to reach a political agreement on the proposal for a directive on cross-border corporate tax rulings. The draft directive aims at increasing transparency in the assurances given by member states to cross-border companies about how their taxes will be calculated. It would amend the directive 2011/16/EU.
Cross-border tax rulings
The Council will be called on to agree on a proposal aimed at improving transparency in the
assurances given by member states to companies about how their taxes will be calculated.
The proposed directive is one of a number of initiatives aimed at preventing corporate tax
avoidance, in parallel with work ongoing within the OECD.
One issue remains to be resolved by the Council, related to past tax rulings.
The directive would require member states to exchange information automatically concerning
advance cross-border tax rulings, as well as advance pricing arrangements. Member states
receiving the information would be able to request further information where appropriate. And the
Commission would be able to develop a secure central directory, accessible to all member states
and the Commission, where the information exchanged would be stored.
A tax ruling is an assurance that tax authorities give to taxpayers on how their tax will be
calculated. An advance pricing arrangement is a decision by a tax authority specifying the pricing
method that will be applied to goods and services sold between related legal entities within the
company.
The proposal is part of a package of measures presented in March 2015. When the Council
discussed it in June, all member states supported the main objectives set out by the Commission.
Tax planning by companies has become more elaborate in recent years, developing across
jurisdictions with the shifting of taxable profits towards states with more advantageous tax regimes.
The proposal is in line with developments within the OECD and its work on tax base erosion and
profit shifting (BEPS). G20 finance ministers are expected to approve the outcome of that work at a
meeting in Lima on 8 October, and G20 leaders at a summit in Antalya on 15 and
16 November 2015.
The main outstanding issue relates to the exchange of information on past rulings. The
Commission had proposed that advance cross-border rulings and advance pricing arrangements
be automatically exchanged if they are issued up to 10 years before entry into force of the
directive, on 1 January 2017, and are still valid on that date. However, to address member states'
concerns about the administrative burden of such a measure, the presidency proposes to reduce
the "look-back" period to five years. The presidency's compromise would also allow member states
to exclude companies with an annual net turnover of less than €40 million.
The proposal amends directive 2011/16/EU on administrative cooperation in the field of taxation,
which sets out practical arrangements for exchanging information, including the use of standard
forms.
The text is based on the work of Council working group responsible for implementing a code of
conduct on business taxation. In 2012, the group reviewed developments in member states'
procedures regarding tax rulings. It identified the types of cross-border rulings on which information
should be exchanged spontaneously, and recommended a model specifying the means of doing
so. However, in practice member states exchange little information on their advance tax rulings or
transfer pricing arrangements, even where these have an impact on other countries.
The directive requires unanimity for adoption by the Council, after consulting the European
Parliament. (Legal basis: article 115 of the Treaty on the Functioning of the EU.)
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