On 6 October 2015, the EU Council (the “Council”) reached a unanimous political agreement on mandatory automatic exchange of advance cross-border rulings (the “Rulings”) and advance pricing arrangements (the “APAs”, together with the Rulings the “Tax Agreements”). This political agreement will be established in a proposal for a directive amending the existing Directive 2011/16/EU on administrative cooperation in the field of taxation (the “Draft Proposed Directive”).
The Draft Proposed Directive is in line with the proposals on automatic exchange of information of tax rulings laid down in Action 5 of the BEPS project, entitled Countering Harmful Tax Practices (1).
The Council agreed upon a wide definition of the Tax Agreements which makes it possible to capture all similar instruments (in particular any communication, agreement, or any other action or instrument with similar effects) to the extent that the tax payer is entitled to rely on it.
The Draft Proposed Directive presents several definitions, which allows the determination of the scope of the automatic data exchange. Firstly, the text covers any Tax Agreement issued, amended or renewed by or on behalf of a public authority (i.e. the government or the tax authority of a Member State).
Secondly, the draft distinguishes between Rulings and APAs:
Rulings deal with the “application or interpretation of legal or administrative tax provisions” in the context of a cross-border transaction or with the question of whether or not activities carried out by a person in another jurisdiction create a permanent establishment in that jurisdiction.
“Cross-border transaction” refers to a transaction where:
- not all the parties to the transaction are resident for tax purposes in the Member State issuing, amending or renewing the Ruling; or
- any of the parties to the transaction is simultaneously resident for tax purposes in more than one jurisdiction; or
- one of the parties to the transaction carries on business in another jurisdiction through a permanent establishment and the transaction forms part of the whole of the business of the permanent establishment. A cross-border transaction also includes any arrangement made by a person in respect of business activities in another jurisdiction which that person carries on through a permanent establishment; or
- the transaction has a cross-border impact.
APAs lay down an appropriate set of criteria for the determination of the transfer pricing of cross-border transactions between associated enterprises or to determine the attribution of profits to a permanent establishment.
In this context a “cross-border transaction” refers to a transaction involving associated enterprises which are not all resident for tax purposes in the territory of a single jurisdiction or where a cross border impact can be identified.
3. Timing of scope of information
It should be noted that the automatic exchange will apply to:
- Tax Agreements issued on or after 1 January 2017;
- Tax Agreements issued, amended or renewed between 1 January 2012 and 31 December 2013 under the condition that they are still valid on 1 January 2014;
- Tax Agreements issued, amended or renewed between 1 January 2014 and 31 December 2016 irrespective of whether or not they are still valid.
The Member States will communicate specific elements on the considered Tax Agreements, including in particular the addressees, a summary of the Ruling or APA, identification of Member States which are likely to be affected. The information will then be made available to all other EU Member States through a centralised directory. The European Commission will only have partial access to the Tax Agreements, the nominal information being excluded.
Nevertheless, Member States will have the possibility to exclude from information exchange Tax Agreements issued to small and medium-sized companies with an annual net turnover of less than EUR 40 million at group level, if such Tax Agreements were issued, amended or renewed before 1 April 2016. This exemption will not, however, apply to companies conducting mainly financial or investment activities.
(1) For more information on the BEPS project, see the article “Base Erosion and Profit Shifting” in the Tax section of the Newsletter of October 2015.