October 9, 2015 12:52 pm
Tax transparency: this is one of the goal of all the European Union Member States. The first steps in this direction were made this week when all Member States signed an agreement on the automatic exchange of information regarding tax rulings. The agreement should lead to greater cooperation between Member States on cross border tax rulings.
It was a historical agreement not only because it was unanimously approved, but also because the Member States reached an agreement in record time, just 7 months. That is why we decided to make “tax ruling” the IATE term of this week.
Currently, Member States share very little information with one another about their tax rulings. It is at the discretion of each Member State to decide whether a tax ruling might be relevant to another EU country or not. As a result, they are often unaware of cross-border tax rulings issued elsewhere in the EU which may have an impact on their own tax bases. The lack of transparency on tax rulings can be exploited by certain companies in order to artificially reduce their tax contribution. It is expected that this initiative will deter tax authorities from offering selective tax treatment to companies once this is open to scrutiny by their peers.
This will result in a much healthier tax competition.
But what is a tax ruling? According to IATE a ruling is a “a judicial or administrative interpretation of a provision of a statute, order, regulation, or ordinance. May also refer to judicial determination of admissibility of evidence, allowance of motion, etc.”
To be more concrete, we will give the example of last year’s Luxembourg Leaks scandal. What happened was that big companies had signed deals with the Luxembourgish authorities to reduce their taxes if they moved to Luxembourg. The press said that “PricewaterhouseCoopers has helped multinational companies obtain at least 548 tax rulings in Luxembourg from 2002 to 2010. These legal secret deals feature complex financial structures designed to create drastic tax reductions. The rulings provide written assurance that companies’ tax-saving plans will be viewed favourably by Luxembourg authorities.”
In this context this week’s agreement is more than welcomed by all Member States. Because it is so important, the European Parliament made a video explaining how a tax ruling works.
Member States will have to transpose the new rules into national law before the end of 2016, meaning that the Directive will come into effect on 1 January 2017.
Related Terminology Resources
Written by Raluca Caranfil
Communication Trainee at TermCoord
Journalist & Student at the University of Luxembourg
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