Luxembourg, 06/10/2015 (Agence Europe) - On Tuesday 6 October, the finance ministers of the EU agreed on the proposed directive aiming to make the exchange of information on tax rulings automatic, with a final version of the text which was visibly influenced by the publication, the day before, of the OECD's action plan to fight tax optimisation.
A little under a year on from the LuxLeaks scandal, which revealed the scale of the phenomenon whereby the use of tax rulings in Luxembourg allowed certain multinationals to bring their tax bill down to rates sometimes close to zero, this is therefore a first taxation victory for Luxembourg, which currently holds the Presidency of the Council of the EU. These tax rulings provide taxpayers with legal clarity on how their situation will be dealt with. Amongst other things, they are used to confirm agreements setting transfer prices, which themselves influence the distribution of the taxable profit between the subsidiaries of a group established in different countries.
Speaking on behalf of the Luxembourg Presidency, finance minister Pierre Gramegna explained that he did not expect the automatic exchange of information on tax rulings to have a negative impact on public finances in Luxembourg. He stated that the only impact would be transparency.
Retroactivity - negotiated solution at the finish. After many consultations, for instance with the states which want the text to be as close as possible to the OECD standard, the Luxembourg Presidency presented the ministers with three amendments on Tuesday morning, at an informal breakfast session, to seek a solution to the question of the retroactivity of the exchange.
Under the text approved by Ecofin, tax arrangements which have been modified or renewed since 1 January 2012 will be exchanged if they were still valid on 1 January 2014. The period after 1 January 2014, all rulings will be exchanged, whether or not they are still valid. This idea, which was previously submitted by the Italian delegation, is in line with the OECD's recommendations in its BEPS action plan, the final version of which was published on Monday (see EUROPE 11403).
To respond to concerns both of the Netherlands, which wanted to exclude SMEs from the scope of application of the directive, and to those of other delegations, which felt that an annual turnover threshold was not enough to define an SME, the Luxembourg Presidency proposed that this be left up to the discretion of the states as to whether to exclude from the retroactive exchange all rulings granted, amended or renewed before 1 April 2016 to companies with an annual turnover below €40 million. This exemption will not be available to businesses with mainly financial or investment activities. From 1 April 2016, no exemptions will be possible for rulings granted to SMEs.
Only Sweden tabled reservations over the changes, but was able to withdraw them quickly following consultation with Stockholm.
The Commission had initially proposed a period of retroactivity of 10 years. Minister Gramegna stressed the administrative burden this would have represented, observing that a period of five years would cover the majority of the rulings due to length of time for which they are valid.
No legal gap in 2016. Recognising that it will take time to transpose the directive, the Commission has agreed that 1 January 2017 (instead of 2016, in its initial proposal) will be the date on which the future rules amending the directive on administrative cooperation will enter into force. “There will be no legal gap, because the existing provisions provide for a spontaneous exchange in respect of certain criteria”, the Commissioner for Taxation, Pierre Moscovici, explained at a public session of Ecofin. Later, at a press conference, he explained that the current spontaneous exchange “presupposes willingness on the part of the member states”. With the imminent automatic exchange, “one may imagine that spontaneity will be increased”, he said. In this regard, “no secrecy will be able to be invoked”, because it will only be a matter of time before the rulings have to be exchanged automatically.
Role of the Commission. The Council has clarified the role the Commission will play in this process. It will receive a “limited set of information”, which will allow it to monitor and assess the proper application of the exchange of information. However - and the following provision is an addition to the Commission's initial proposal - the information received by the Commission “may not be used for other purposes” (see EUROPE 11399). “Most of the information exchange will have to be shared with the Commission”, the Commissioner announced, welcoming this decision.
Reactions to the political agreement have been mixed, both from NGOs and the Greens/EFA and S&D groups at the European Parliament. EUROPE will return to this.
Country-by-country reporting. Ecofin provided certain ministers, notably those of France and Ireland, with the opportunity to be crystal clear about the fact that they wanted the EU to align itself on the OECD. The Commission is currently considering the possibility of going further than the OECD on the transparency of the 'country-by-country' figures, by proposing that these figures be made public, rather than just submitted to the administrations. The OECD itself has warned the Commission against this approach (see EUROPE 11403). According to Moscovici, the Commission will move forward on the basis of the results of its impact assessment, either “by adopting the OECD standard, or by going further”. The Commissioner has made no secret of his personal preference for public reporting. “It is a fairly irresistible movement within this movement of transparency”, he said. However, he promised a responsible attitude which will not penalise European businesses in global competition. (Original version in French by Elodie Lamer)