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 extending the cooperation between tax authorities to automatic exchange of financial account information (Council Directive 2014/107/EU and the press release) and cross-border tax rulings and advance pricing arrangements (Council Directive of 8 December 2015).
Main provisions of the 2011 Directive (as amended in 2014 and 2015):
- 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 and, in the case of cross-border tax rulings and advance pricing arrangements, the automatic provision of information to all Member States and the Commission. 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.
- Since its amendment on 8 December 2015, the Directive has also provided for the automatic exchange of information regarding cross-border tax rulings and advance pricing arrangements with effect from 1 January 2017.
- 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), for spontaneous exchange of information (transmission of information no later than one month after it becomes available) and for automatic exchange of information (depending on the situation).
- 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, electronic channels for exchanging information and a central directory for storing and sharing information on cross-border tax rulings and advance pricing arrangements.
- 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.
Previous Directives and milestones
- 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 15 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 12 June 2013 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 ).
- Section VIII(D)(4)(c) of the Directive provides that the European Commission publishes a list of jurisdictions with which the European Union has an agreement in place according to which that jurisdiction will provide Member States with the financial account information mentioned in the extension of the Directive. That condition is fulfilled with the signature of the Amending Protocols to the existing Savings Agreements with third countries that upgrade those Agreements to the standard referred to in the extension of the Directive. That standard is also the globally recognised standard for automatic exchange of financial account information. As of 12 July 2016, the list consists of the following third countries and territories:
Extension of the Directive on Administrative Cooperation to information on cross-border tax rulings and advance pricing arrangements
- On 15 March 2015 the Commission proposed extending further the automatic exchange of information to rulings and advance pricing arrangements. See the press release (IP/15/4610), the frequently asked questions (MEMO/15/4609), the proposal (COM/2015/0135 ), and Commissioner Moscovici's speech.
- On 8 December 2015 the Economic and Finance Ministers Council formally adopted a Directive 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 18 December 2015 (Council Directive (EU) 2015/2376).
Extension of the Directive on Administrative Cooperation to country-by-country reporting
- On 28 January 2016 the Commission proposed extending further the exchange of information to include country by country reporting. See the summary, the press release (IP/16/159), the frequently asked questions (MEMO/16/160), and the proposal (COM/2016/25).
- On 25 May 2016 the Economic and Finance Ministers Council formally adopted a Directive 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 3 June 2016 (Council Directive (EU) 2016/881).
Proposed extension of the Directive on Administrative Cooperation as regards the access by tax authorities to Anti-Money Laundering information
- On 5 July 2016 the Commission proposed amending further the Directive by providing tax authorities with access to anti-money laundering information. See the press release (IP/16/2354), the frequently asked questions (MEMO/16/2406), and the proposal (COM/2016/452 ).
The implementing measures
- On 6 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 15 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.
- On 15 December 2015 the European Commission adopted a Regulation laying down detailed rules for implementing certain provisions of Council Directive 2011/16/EU on administrative cooperation in the field of taxation and repealing Implementing Regulation (EU) No 1156/2012 (Commission Implementing Regulation of 15 December 2015 (EU) 2015/2378). This act replaces the previous implementing provisions by consolidating them with new provisions as regards the computerised format to be used for the automatic exchange of financial account information.
The future of the 2011 Directive
Despite all the progress already brought by Directive 2011/16/EU and its amendments, the Commission considers it a priority to further enhance administrative cooperation and tax transparency.
On 17 June 2015 the Commission published an Action Plan for fair and efficient corporate taxation in the EU. The Action Plan sets to reform the corporate tax framework in the EU, in order to tackle tax abuse, ensure sustainable revenues, increase transparency and support a better business environment in the Single Market. This may result also in further proposals to extend administrative cooperation.