EU finance ministers approved the automatic sharing of information on tax rulings between member states on 6 October, in a bid to cut tax competition. EURACTIV France reports.
Almost one year on from the Luxleaks scandal, which broke with the revelation of secret tax deals (tax rulings) between governments and multinational companies, the European Union’s finance ministers have unanimously adopted a directive on the automatic sharing of information on these agreements.
It is hoped that this boost in transparency will cut tax competition between European countries. Multinationals exploit differences in corporate tax rates – often legally – to lower their tax burdens.
Tax rulings are at the heart of this system, as they allow companies to negotiate preferential tax rates in certain countries, and thus deprive other countries of revenue.
Under the new directive, which will come into force by 1 January 2017, member states will systematically communicate every three months on the tax rulings they offer.
“This will help us to understand how companies are taxed and to identify their financial arrangements,” a source from the French finance ministry told EURACTIV.
A rapid conclusion
Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, welcomed the deal. “I believe the agreement reached today shows that the member states are ready to act in a concrete way to reach our common goal of fair and efficient taxation,” he said.
The Commissioner highlighted the “exceptionally fast adoption” of the directive, which he said was “unprecedented”.
First presented in March this year, the Commission’s proposal on the “mandatory automatic exchange of information in the field of taxation” took only a matter of months to navigate through the adoption process, where some directives run aground for years at a time.
Five years’ retroactivity
Agreeing on the directive’s period of application was the major hurdle for the finance ministers to overcome. The initial European Commission proposal required details of tax rulings from the last ten years to be exchanged between EU member states.
But this was too long for the ministers, who agreed on a limit of five years for active tax rulings and three years for expired rulings: the new transparency rules will cover all active tax rulings in place since 1 January 2012, and expired tax rulings from 1 January 2014.
This compromise has been harshly criticised by both MEPs and NGOs. Among the vocal critics was Alain Lamassoure, a French Republican MEP and president of the European Parliament’s Special Committee on Tax Rulings (TAXE). He called for the information exchanged between member states to include all tax rulings that are “still active”.
Tove Maria Ryding, the tax justice coordinator for the NGO Eurodad, said, “In terms of the discussion about how many of the past rulings should be exchanged, both five and ten years are insufficient. It seems there are twenty year old rulings that are still in effect, and as long as this is the case, they still impact the tax payments of multinational corporations and should be covered by the system.”
A role for the Commission?
Any improvements to transparency that this directive brings will be limited to the tax authorities of the EU member states: the European Commission, which oversees competition at the European level, will not be able to access the information.
“The most efficient weapon of the European Commission, its ability to carry out inquiries into illegal state aid, has effectively been removed,” said Eva Joly, the vice-president of the TAXE committee.