On the 18 March, 2015, The European Commission unveiled plans to combat corporate tax avoidance with a proposed tax 'Transparency package'. Its aim is to tackle businesses exploiting the complexity of tax rules and the lack of transparency within the European Union (EU) Member States as they manoeuvre profits and minimise their tax exposure.
Eliminating discretion
As things stand, Member States have discretion over whether they deem a tax ruling will be of relevance to other EU countries. The transparency package is designed to eliminate this discretion. They propose that every three months, national tax authorities must share reports with other Member States on all their cross-border tax rulings. The Commission said:
“National tax authorities will have to send a short report to all other Member States on all advance cross-border tax rulings and advance transfer pricing arrangements that they have issued. The automatic exchange of information on tax rulings will enable Member States to detect certain abusive tax practices by companies and take the necessary action in response.”
Following this announcement the proposals will be submitted to the European Parliament for consultation, and Member States should agree by the end of 2015, with a view to implementation on 1 January, 2016. The proposed package may become quite an administrative burden for the revenue authorities. Member States will need to think carefully on how they will be able to deliver on this.
The package introduces initiatives to enhance tax transparency within the EU. This includes evaluating potential new transparency rules for multinationals, such as public disclosure of certain tax information. The Commission will weigh the benefits and risks of such measures against their goals. Striking a careful balance is crucial to avoid short-term, reactive decisions. Disclosure rules might conflict with taxpayer confidentiality, a concern supported by businesses and the OECD, especially regarding country-by-country reporting. Ensuring transparency while respecting confidentiality remains a delicate challenge for policymakers.
A second 'Action Plan,' set for release before summer, will focus on equality and efficiency in corporate taxation within the Single Market. Key initiatives include re-launching the common consolidated corporate tax base (CCCTB), which aims to establish uniform rules for determining taxable profits. Although introduced years ago, its implementation has faced significant challenges. The plan will also propose further integration of OECD/G20 actions to combat base erosion and profit shifting (BEPS) across the EU, strengthening measures to address tax avoidance. These steps seek to harmonize corporate tax frameworks while addressing complex implementation hurdles.
Increased transparency may contribute to better accountability and improved decision making, but only where it is relevant information of the appropriate quality. We may eventually see greater clarity with tax rulings being published, as opposed to just exchanged between jurisdictions.
The announcement reinforces the need for businesses to have the appropriate controls in place for tax compliance. A robust policy on how tax affairs are conducted is essential and all businesses need to be comfortable defending their tax policy in the public domain.