Brussels, 18/03/2015 (Agence Europe) - On 18 March, the European Commission presented its proposal on the automatic exchange of information (AEI) it wishes to apply from 1 January 2016 on tax rulings (or 'anticipatory tax decisions') with a cross-border impact, whilst pledging to go further in fighting unfair tax optimisation practices by multinationals.
The Commissioner for Taxation, Pierre Moscovici, said that the Commission's proposal had been well put together: the scope of application proposed leaves “no room for interpretation or get-out clauses” (see EUROPE 11274). Readers may recall that the rulings in question are agreements, communications or any other instrument or action having similar effects, granted by a tax authority of the member state, which clarify or interpret a legal or administrative provision regarding the tax law of that state, and relate to cross-border transactions (investments, provision of goods and services, use of tangible or intangible assets, etc) and granted upstream of these transactions.
The Commission notes that all member states grant rulings, albeit not all in the same form. Within the European institution, it is however recognised that the scope of application of the legislative text is likely to be the most discussed point within the Council, which must take position unanimously. Even so, the Commission is hopeful that the member states will not water down its definition of the rulings. The small countries are, furthermore, believed to be in favour of including all rulings, not just cross-border ones. Transparency yes, but on an equal footing, is their view. By definition, these countries have more open economies and are concerned about the potential competitive advantage the larger member states may derive if 'domestic' rulings are not notified. The Commission hopes that the Latvian Presidency of the Council will kick off the work this month, with the aim of reaching an agreement by the end of the year.
The proposal places obligations on the member states regarding rulings granted to any company with a tax presence in any of them. Previously, as the Commission points out, the state had given it a mandate to extend certain obligations to third countries (as is the case with the directive on tax on savings). The Commission argues that this could also be the case for these new provisions. When asked about the possibility that multinationals may leave in order to set up in more favourable parts of the world, Moscovici said that he wanted Europe to remain attractive. However, “it is neither ethnically nor economically defensible to do so at the price of fair tax competition”, at the expense of taxpayers, he pointed out.
The states will therefore exchange on a quarterly basis, between themselves but also with the Commission, certain information on the rulings and advance transfer pricing arrangements (APA), to include all such arrangements concluded over the last 10 years ( - the content of the ruling or APA; - a description of the criteria used to determine the transfer price, in the case of an APA; - the identification of other countries which are likely to be directly or indirectly affected by the ruling or APA; and the identification of any person, other than natural persons, in the member state who are likely to be affected). The Commission will not assess these data on a case-by-case basis, but is toying with the idea of a global overview to gain insight into any issues with the design of certain rulings which may allow companies to avoid taxation, via profit transfers and, possibly, work with the states at any given time to lay down appropriate conditions to grant tax rulings, as per the call made by Germany, Italy and France in a letter to the Commission in late November 2014 (see EUROPE 11209).
Country-by-country reporting. The Commission is also planning to carry out an impact assessment to determine the benefits of the public disclosure of tax information by companies. “President Juncker has stressed that he believes we should go further on that matter”, that of transparency, said Moscovici, who is himself in favour of full tax transparency. “By the summer, I hope that we will be able to return to transparency and go further”, he added. However, this matter lies outside his remit, as it comes under company law and not taxation.
The Commission is working on an impact analysis “to determine what it is that it wants and how it can achieve it”, a Commission source told us. The OECD will also shortly wrap up its work on this subject, but is believed to be moving more towards country-by-country reporting to the tax administrations rather than public reporting, on the grounds of confidentiality and business secrecy. The non-profit sector has criticised the fact that the Commission has not taken this same initiative. The NGO ONE argues that the Commission should present a proposal in June, requiring multinational companies publicly to disclose their income, tax and profits on a country-by-country basis. Oxfam believes that by not including reporting, the Commission is letting the citizens down. Transparency International welcomes the Commission's proposal, and adds its voice to the calls for country-by-country reporting.
The European employers (BUSINESS EUROPE) welcomed the fact that the Commission's proposal protects companies' commercially sensitive information and supports the principle of the tax ruling, which is “essential to encourage companies to invest in Europe”.
The MEP Eva Joly (Greens/EFA, France) said that the Commission had gone no further than to “clarify a directive from 1977, which was revised in 2011, which it has ignored up to now, just as the governments have”. “This makes it the smallest step it was possible to take towards greater tax justice within the EU”, she said. Gianni Pittella (S&D, Italy) said that his group would undertake to ensure that country-by-country reporting was part of the deal. “Transparency between member states is a first step. The next step must be the maximum possible transparency between the economic actors themselves and consumers”, said Alain Lamassoure (EPP, France), who chairs the special TAXE committee set in place at the European Parliament following the LuxLeaks scandal. Michael Theurer (ALDE, Germany), co-rapporteur for this special committee, welcomed the Commission's package, but also expects more.
In a second salvo of measures: the CCCTB. The head of the June European summit, the Commission is to present a legislative package on corporate taxation. It hopes to give a second wind to the common consolidated corporate tax base (CCCTB). When asked how it will revive this project, which has been at deadlock at the Council for four years, Moscovici said that the rule of unanimity on taxation issues could sometimes be very complex. He said that there are three possible techniques to relaunch the CCCTB: - “either we use the same draft, with the risk of getting the same reaction”, although the member states seem somewhat more open to the question these days; - “we take part of the draft or use the draft in a different way”; - “the third option is enhanced cooperation”. These three options are given in decreasing order of logic, Moscovici explained. He said that in the June package, there would be a proposal (the same or a modification) on the CCCTB for the attention of the Twenty-Eight. The groups at the EP support the project, but the ECR group has stated that it will oppose any effort to harmonise taxation. Morten Messerschmidt (ECR, Denmark) is critical of Juncker's attempt to make use of the LuxLeaks saga to achieve his “fantasies of tax harmonisation in the EU”. It was the LuxLeaks scandal which brought to light the fact that certain multinational companies are making use of tax rulings to reduce their tax to rates in some cases close to zero. The package presented on Wednesday is the start of the Commission's response to the scandal. (Elodie Lamer)