Enhanced administrative cooperation in the field of (direct) taxation
One of the benefits of the Internal Market is that EU citizens and businesses have the freedom to move, operate and invest across national borders. But because direct taxation is not harmonised across the EU, this freedom can mean that some taxpayers manage to avoid or evade tax in their country of residence. Tax authorities in the EU have therefore agreed to cooperate more closely so as to be able to apply their taxes correctly to their taxpayers and combat tax fraud and tax evasion. This is not about tax harmonisation. It is merely about enabling Member States, in an increasingly globalised environment, to ensure that all their taxpayers pay their fair share of the tax burden. The agreed instruments for cooperation between Member States create trust by laying down the same rules, obligations and rights for all.
The essential piece of legislation in this respect is Council Directive 2011/16/EU as regards administrative cooperation in the field of taxation (Council Directive 2011/16/EU and the press release). The 2011 Directive established all the necessary procedures for better cooperation between tax administrations in the European Union - such as exchanges of information on request; spontaneous exchanges; automatic exchanges; participation in administrative enquiries; simultaneous controls; and notifications to each other of tax decisions. It also provided for the necessary practical tools, such as a secure electronic system for the information exchange.
This Directive was recently amended by Council Directive 2014/107/EU which extended the cooperation between tax authorities to automatic exchange of financial account information (Council Directive 2014/107/EU and the press release).
- The Directive provides for the exchange of information in three forms – spontaneous, automatic and on request. Under spontaneous exchange, a country provides its treaty partner with information about likely tax evaders if it happens to uncover such information during its own audits. Automatic exchange consists of the automatic provision of information by one country to another on income of residents of the second country; this form of exchange is usually in electronic form and usually on a mutually agreed periodic basis. Information exchange on request is a response by one country to a request by another country for information. These three forms of information exchange conform with standards agreed by tax administrations at international level, notably at the OECD.
- The Directive provides for the exchange of information that is of `foreseeable relevance` to the administration and the enforcement of Member States' tax laws.
- The scope of the Directive encompasses all taxes of any kind with the exception of VAT, customs duties, excise duties and compulsory social contributions because those taxes are already covered by other Union legislation on administrative cooperation.
- The scope of persons covered by particular exchanges depends on the particular subject matter but the Directive as a whole covers natural persons (i.e. individuals), legal persons (i.e. companies), associations of persons and any other legal arrangements.
- The Directive provides for mandatory automatic exchange of information, where information is available, in respect of five non-financial categories of income and capital, with effect from 1 January 2015 i.e. for 1) income from employment, 2) director's fees, 3) life insurance products not covered by other Directives, 4) pensions, and 5) ownership of and income from immovable property.
- Since its amendment on 9 December 2014, the Directive also brings a list of financial information within the scope of the automatic exchange of information with effect from 1 January 2017. This information consists of interest, dividends and similar type of income, gross proceeds from the sale of financial assets and other income, and account balances.
- Following a Commission report and on the basis of a new proposal by the Commission, the above two lists of financial and non-financial categories and items might be extended to include additional categories and items to be subjected to the mandatory automatic exchange of information. In addition, the Council may also decide to introduce unconditional automatic exchange of information in respect of the above-mentioned five non-financial categories.
- The Directive ensures that the EU standard for exchange of information on request is aligned to international standards by providing that Member States can no longer refuse to supply information solely because this information is held by a bank or other type of financial institution.
- The Directive also ensures that the existing mechanisms for exchange of information are improved. Deadlines are included to ensure the swift exchange of information on request (reply within six months following receipt of request) and for spontaneous exchange of information (transmission of information no later than one month after it becomes available).
- The Directive provides for feedback by the Member States that have received information. Such feedback should be given, at the latest, three months after the outcome of the use of the information is known, in the case of information received spontaneously or on the basis of a request, or once a year in the case of information received automatically.
- The Directive provides for other means of administrative cooperation including by allowing officials of a Member State which has made a request for information to be present in the offices of the tax authorities of the requested Member State, or to be present during administrative enquiries carried out by the requested Member State. Also provided for are simultaneous controls (audits), notifications to taxpayers of requests received from another Member State, and sharing of best practices.
- The Directive provides for the introduction of standard forms for exchange of information on request and spontaneous exchanges, computerised formats for the automatic exchange of information and electronic channels for exchanging information.
- The Directive contains a most favoured nation clause: if a Member State provides wider cooperation to a third country than that provided for under the Directive, it may not refuse such wider cooperation to another Member State that requests it on its own behalf.
- The Directive establishes a regulatory committee, which will be competent for implementing the technical aspects of the Directive.
- The previous Directive on mutual assistance – 77/799/EEC – was designed in a different context; Internal Market requirements and increased globalisation made it clear Directive 77/799 needed to be updated.
- For these reasons, Directive 77/799/EEC was repealed and replaced by Directive 2011/16/EU.
First version of the Directive on Administrative Cooperation in Taxation
- On 2 February 2009, the European Commission presented a proposal to replace Council Directive 77/799/EEC concerning mutual assistance by the competent authorities of Member States in the field of direct taxation and taxation of insurance premiums (COM(2009)29 final and the press release IP/09/201).
- On 15th February 2011 the ECOFIN Council formally adopted the new Council Directive 2011/16/EU on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC. The Directive was published in the Official Journal on 11 March 2011 (Council Directive 2011/16/EU and the press release).
- On 1st January 2013 the national laws, regulations and administrative provisions implementing the Directive entered into force with the exception of the provisions relating to automatic exchange of information which entered into force on 1st January, 2015.
Extension of the Directive on Administrative Cooperation to financial account information
- On 12th June2013 the Commission proposed extending the automatic exchange of information between EU tax administrations, as part of the intensified fight against tax evasion. See the press release (IP/13/530), the frequently asked questions (MEMO/13/533) and the proposal (COM/2013/348 ), and Commissioner Šemeta's speech.
- On 9 December 2014 the ECOFIN Council formally adopted Council Directive 2014/107/EU amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation. The Directive was published in the Official Journal on 16.12.2014 (Council Directive 2014/107/EU and the press release).
The implementing measures
- On 6th December 2012 the European Commission adopted a Regulation laying down detailed rules for implementing Council Directive 2011/16/EU (Commission Implementing Regulation 1156/2012). It includes various provisions on the standard forms and means of communication that Member States will use when exchanging information.
- On 15th December 2014 the European Commission adopted another Regulation (Commission Implementing Regulation 1353/2014) amending Regulation (EU) No 1156/2012. This Regulation deals with the computerized format to be used for the mandatory automatic exchange of information and applies from 1 January 2015.
Despite all the progress already brought by Directive 2011/16/EU and its amendment in 2014, the Commission considers it a priority to further enhance administrative cooperation and tax transparency.
On 12 November 2014, President Juncker therefore announced in the European Parliament that the Commission will introduce a legislative proposal providing for compulsory exchange of information between Member States on tax rulings.
The Commission published the proposal on 18 March 2015 as part of a tax transparency package. The idea is that when Member States issue advance rulings in situations or concerning transactions that are likely to be of interest to the tax authorities of other Member States, they should be obliged to provide information on those rulings to other Member States on a systematic basis.