Mandatory exchange of tax rulings proposal: a “missed opportunity” say MEPs

The EU Commission proposal to make it mandatory for EU member states to exchange information on their tax rulings received only a lukewarm welcome in Parliament’s Economic and Monetary Affairs Committee on Tuesday.

However, the report by Markus Ferber (EPP, DE), voicing dismay at the directive’s limited scope and late entry into force, has already been overtaken by last week’s ECOFIN Council deal, which watered down the Commission proposal even further.

The report was approved by 49 votes in favour, 0 against and 6 abstentions.

“Disappointed”

Parliament’s rapporteur Markus Ferber is disappointed about the Council agreement:

“If this is the final text, member states will have missed a great opportunity to create more transparency in taxation. National budgets will continue to suffer.

We need an EU-wide systematic and mandatory procedure. For the moment, member states’ tax authorities would not realise that tax ruling deals forged in other member states are undermining their own tax bases.

Tax authorities should be obliged to exchange information on tax rulings and make them available to a central database at the European Commission.

There is also a competition side to tax rulings. This is why the Commission must be empowered to access and use the data to investigate tax avoidance and dumping practices and to assess whether they are in line with state-aid rules. Why are member states clearly denying the Commission access to these data? Are they hiding something?

What MEPs want, compared to what the Council agreed

Limited scope

MEPs would prefer the directive to apply to all tax rulings, not just “cross border rulings and advance pricing arrangements”, given that purely national transactions can also have cross-border effects. The Council made the directive’s scope “cross-border only”.

Commission not in the loop

The Council also ensured that the European Commission is explicitly not allowed to do anything with the information – to which the Commission only has very limited access – other than overseeing that it conforms to the directive, and that the directive is properly applied.

No retroactive effect

The Commission says that the mandatory exchange mechanism should apply to tax rulings issued in the ten years before it enters into force, whereas MEPs say it should apply to all rulings that are still valid on the day the directive enters into force. The Council agreed that the directive would apply only to rulings, amendments or renewals of rulings after 31 December 2016.

Start sooner

MEPS want the automatic exchange of information to start as soon as possible, whereas the Commission proposes that it should start on 1 January 2016. The Council agreed on 1 January 2017.

Exchange faster

MEPs insist that the information should be communicated “promptly after the ruling or price arrangement is issued” rather than “within one month following the end of the quarter during which the ruling was issued” as the Commission proposes. The Council deal says that the information should be provided “within three months following the end of the half of the calendar year during which the ruling was issued”. This means that if a ruling is issued in January, the mandatory exchange of information can take place until 30 September.

Next steps

The procedure for amending this Council directive is consultation. The Council struck its informal deal on the Commission proposal at the 6 October meeting of Economy and Finance (ECOFIN) ministers. The directive is to be adopted at a forthcoming Council meeting, once the European Parliament has given its opinion and it has been finalised in all official languages.

The new rules are to apply from 1 January 2017. Until then, existing obligations to exchange information among member states will stay in place.

Source: Mandatory exchange of tax rulings proposal: a “missed opportunity” say MEPs

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