Due to the increasingly global nature of the economy much of the initiative in this area has come from work undertaken by the Organisation for Economic Cooperation and Development (OECD). In February 2014, the OECD unveiled a new single global standard for the automatic exchange of information between tax authorities.
The EU has nonetheless been active in trying to ensure that this international agenda is implemented in Europe. In October 2014, EU Finance Ministers agreed on the revision of the Directive on Administrative Cooperation which takes into account the global standard developed by the OECD. In March 2015, the European Commission came forward with a package on tax issues, including a proposal extending the Directive on automatic exchange to tax rulings issued by Member State authorities requiring member states to exchange information automatically on advance cross-border tax rulings, as well as advance pricing arrangements. Member states receiving the information will be able to request further information where appropriate. Under the Luxembourgish Presidency of the Council, agreement was reached on the Directive in October 2015. The directive will require member states to exchange information automatically on advance cross-border tax rulings, as well as advance pricing arrangements. The new rules will come into effect by January 2017.
In January 2016, as part of its Anti-Tax Avoidance Package, the Commission proposed a revision to the Directive on mandatory automatic exchange of information in the field of taxation. The text introduces non-public country-by-country reporting for Multinational Enterprise (MNE) Groups, requiring them to provide annually and for each tax jurisdiction in which they do business certain information including their revenue, their profit before income tax, the income tax they have paid and accrued, and the number of employees they have. Investment funds are outside the scope of this proposal as they are not required to consolidate portfolio companies at the fund level according to accounting rules. Agreement was reached on this file in March 2016 and the new rules are expected to enter into force on 1st January 2017.
Similarly in the US the Foreign Account Tax Compliance Act (FATCA) enacted in 2010 aims to combat tax evasion by US tax payers using non-United States accounts. To accomplish this, FATCA imposes a 30% withholding tax on non-US entities unless US account holders are disclosed. To avoid this withholding tax, FATCA generally requires foreign financial institutions (FFIs) and certain other foreign entities (including non-US investment funds and alternative investment vehicles) to undertake diligence to identify US accounts, and report certain information to the US Internal Revenue Service (IRS).
Invest Europe position
The direct impact of the current reforms will fall primarily on Member States’ tax authorities, as they will be responsible for a new legal obligation to exchange additional information. There may conceivably be a knock-on effect for a wide range of private sector interests. The wider the range of information which must be provided the greater the potential administrative burden that will be placed on underlying companies.
Agreement on the revision of the Directive on Administrative Cooperation in Tax matters >
December 2014, EU Institutions
Draft Report on the Updated Directive on Mandatory Automatic Exchange of Information in the Field of Taxation >
November 2013, European Parliament
Global Forum on Transparency and Exchange of Information for Tax Purposes >
November 2013, OECD