EU member states, including Ireland, will be obliged to share details of its tax deals with multinationals, under wide-ranging new legislation unveiled by the European Commission this morning.
The new proposal on automatic exchange of tax rulings represents the EU’s most comprehensive attempt yet to clamp down on corporate tax avoidance at an EU level. It comes in the wake of the “Lux Leaks” scandal and growing public concern that US multinationals are exploiting mismatches between different tax schemes to reduce their tax bills by locating their headquarters in low-tax EU countries.
Under the proposal - which must be approved by all EU member states - countries will be obliged to share details of tax rulings every three months. The legislation, which will be legally-binding, will also apply retrospectively to tax rulings granted by countries over the last ten years.
Noting that “many member states have set up tax regimes designed to encourage multinationals to shift profits to their jurisdiction,” the European Commission said this morning that greater tax transparency is “urgently needed” to tackle aggressive tax planning.
Tax rulings – also known as ‘comfort letters’ – are specific tax arrangements offered to individual companies by national tax authorities.
Announcing the tax package, EU economics commissioner Pierre Moscovici said that tolerance for corporate tax avoidance by companies had "reached rock-bottom." "We have to rebuild the link between where companies really make their profits and where they are taxed," he said.
The fight against tax avoidance has been identified by the head of the European Commission Jean-Claude Juncker as one of the priorities of his five-year term.
The European Commission is investigating four countries – Ireland, the Netherlands, Belgium and Luxembourg – for alleged breach of EU competition rules through tax deals they offered companies.
The Commission’s competition arm is due to issue its verdict before June.
Under the proposal announced on Wednesday, national tax authorities will be required to furnish a detailed description of the tax rulings, including the criteria used to determine advanced pricing arrangements.
The Commission is also proposing to work with member states to calculate how much revenue is lost each year through tax evasion and avoidance by companies.
Under the new proposal, information will be shared between member states and the European Commission, but will not be available to the public.
Campaigners for tax transparency have criticised the proposal. The European Network on Debt and Development (Eurodad) said that keeping the information confidential prohibits “proper public scrutiny” of large companies and governments’ tax administrations.
Fine Gael MEP Brian Hayes said that Ireland had "nothing to fear" from engaging with the Commission on their new proposals. "Ireland is well-placed on tax transparency," he said, pointing out that Ireland is committed to the OECD BEPS process, and was one of the first countries to approve the Foreign Account Tax Compliance Act (FATCA) arrangement and to sign up to the Berlin international tax agreement.
However, he said that it was important that the individual nature of the tax schemes in each country was respected. “There cannot be a one-size-fits-all approach and we need to recognise the individual nature of each Member State’s tax system,” he said.
