E arlier in the year Pierre Moscovici, European tax commission-er, indicated that the European Commission (EC) would beproposing legislation on the automatic exchange of national

tax rulings. On March 18 2015 it published the formal proposal toensure mandatory automatic exchange of advance cross-border rul-ings and advance pricing arrangements. On the same day, the EC published a ‘Communication on tax

transparency to fight tax evasion and avoidance’. This makes clear,first, that the proposed legislation is to be implemented “rapidly”.Second, it emphasises that this new proposal is the beginning ofserious action, not its conclusion. By the summer of this year theCommission will present “further measures to counteract tax avoid-ance and harmful tax competition in an Action Plan on corporatetaxation”. It’s going to be a busy summer for tax professionals.

Choosing the right approachWhen the EC came to consider what legislation to propose therewere a number of possible approaches open to it. It could, forexample, have proposed the creation of a brand new regime.Alternatively, it could have built on existing obligations to reportthe provision of potential state aid. The Commission took a sim-pler route than either of these. It chose to amend the Directive onAdministrative Cooperation (2011/16/EU) (“the Directive”).

Passed on February 15 2011, the Directive was intended totake “a completely new approach ... to give member states thepower to efficiently cooperate at international level to overcomethe negative effects of an ever-increasing globalisation on theinternal market”. It also aimed to “provide for exchange ofinformation in tax matters to the widest possible extent”. Whatbetter basis could there be for a regime requiring the exchangeof rulings and agreements?Proposing an amendment to the Directive has another advan-

tage in that EU member states have recently shown a willingnessto extend its scope. Council Directive 2014/107/EU implement-ing the extension was passed on December 9 2014. Assisted by theOECD and the G20, member states have given some momentumto the development of the Directive. It is also worth remembering the fate of the Savings Directive

which sought to create an information exchange regime separatefrom the Directive. On October 15 2014, the EuropeanCommission indicated that to have just one standard of auto-matic exchange and avoid legislative overlap, it would “considerthe repeal of the Savings Directive”. If any separate regime forcross-border rulings would have to come within the Directive atsome point, it would be much better to adapt the Directive fromthe outset.

Europe | Cross-border rulings

www.internationaltaxreview.com2 May 2015

Timothy Lyons QC and Kelly Stricklin-Coutinho of 39 Essex Chambers analyse recent transparency developments acrossEurope, focusing on the proposed requirement for EU member states to provide a quarterly report on all cross-border taxrulings and advance pricing arrangements.

EU: Cross-border exchange ofrulings – what’s proposed?

Cross-border exchange ofrulings aims at defeating‘aggressive tax planning’

The proposalThe proposal was inspired by the work of the Code of ConductGroup for Business Taxation and aims to defeat ‘aggressive taxplanning’. This is defined as “shifting taxable profits towards stateswith beneficial tax regimes”. It is not necessarily easy to distinguishbetween such conduct and the exercise of a fundamental freedomwithin the internal market. There is, though, no need to do so forthe purposes of the proposal. The fundamental provision of the proposal states that:“The competent authority of a member state issuing oramending an advance cross-border ruling or an advancepricing arrangement after the date of entry into force ofthis Directive shall, by automatic exchange, communicateinformation thereon to the competent authorities of allother member states as well as to the EuropeanCommission.”

Exchange is to be made within one month following the end ofthe quarter in which the rulings or arrangements are made. Rulingsor arrangements which are issued within 10 years of the entry intoforce of the legislation, but which are still then valid, are to beexchanged before December 31 2016. The European Commissionwill, therefore, obtain a comprehensive picture of the situation. ‘Advance cross-border ruling’ and ‘advance pricing arrange-

ment’ are both widely defined, as one would expect. Broadlyspeaking, a ruling or an advance pricing agreement is defined as anagreement, communication, or any other instrument or actionwith similar effects, issued by a member state’s authorities. Eachmay be “issued in the context of a tax audit”. A ruling must: (i) concern the interpretation or application of a

legal or administrative provision of tax law; and (ii) relate to across-border transaction or to whether activities by a legal personresult in a permanent establishment; and (iii) be made in advanceof transactions, activities or a tax filing. A cross-border transactionis, in turn, defined. It may involve, but is not restricted to, makinginvestments, provision of goods, services, finance or the use of tan-gible or intangible assets. It does not have to involve directly theperson receiving the ruling.An advance pricing agreement determines, in advance of cross-

border transactions between associated enterprises, an appropriateset of criteria for the determination of their transfer pricing ordetermines the attribution of profits to a permanent establishment.

There then follow specific definitions of ‘associated enterprises’,‘transfer prices’ and ‘cross-border transactions’.These are wide definitions and cover more than the kind of rul-

ings currently being analysed under state aid investigations. Theywould seem able to encompass, for example, rulings which havebeen made on the application or operation of double tax treatiesand not just in relation to the creation of permanent establishments.Rulings in relation to the UK’s newly-introduced diverted profitstax may also be covered. An advance cross-border ruling which

exclusively concerns and involves the tax affairs of one or more nat-ural persons is, however, not to be subject to automatic exchange.The proposal specifies precisely what information is to be

exchanged. The taxpayer and its corporate group is to be identi-fied, the content of the ruling or arrangement and a description ofthe relevant business activities or transactions is to be given, adescription of the criteria used to determine the transfer pricing isto be provided and other member states likely to be directly orindirectly impacted are to be identified.

Reflecting the cross-border impact of national legislationand rulingsThe principle underlying the legislation is that the potential impactand relevance of tax rulings is best assessed not by the memberstate giving them but by other member states. Member states maylike to regard their tax system as their business. This proposalshows that it is every other member states’ business as well. Amember state’s tax system is also, of course, the concern of theEuropean Commission. It is not just the private sector which hasto adapt to an EU without borders.

Europe | Cross-border rulings

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“Member states may like toregard their tax system as theirbusiness. This proposal showsthat it is every other memberstates’ business as well

Information to be exchanged includes identification of the taxpayer concerned and its corporate group