EU vows to improve transparency on cross-border tax rulings

The finance ministers of the European Union (EU) formally adopted on Tuesday a directive aimed at improving transparency on tax rulings, in the wake of the sweetheart tax deals struck by Starbucks and Fiat with European nations were ruled illegal.

The directive is one of a number of EU initiatives aimed at preventing corporate tax avoidance.

The new rules will better regulate the tax rulings given by member states to companies in specific cases about how taxation will be dealt with, a statement released after the finance ministers' meeting said.

In October, the EU has ruled that Starbucks' coffee roasting company in the Netherlands and Fiat's financing subsidiary in Luxembourg were granted "selective tax advantages" by local authorities.

It was said that Dutch and Luxembourg tax policies have for years helped both multinationals reduce tax by a total of between 20 and 30 million euros.

The statement said tax planning by companies has become more elaborate in recent years, developing across jurisdictions. It involves, for example, the shifting of taxable profits towards states with more advantageous tax regimes, or eroding the tax base.

The new directive will ensure that where one member state issues an advance tax ruling or transfer pricing arrangement, any other member state affected is in a position to monitor the situation and the possible impact on its tax revenue.

Meanwhile, the directive will require 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.

The statement said, the European Commission, EU's executive body, will be able to develop a secure central directory, where the information exchanged would be stored. The directory will be accessible to all member states as well as to the Commission, to the extent that it is required for monitoring the correct implementation of the directive.

A tax ruling is an assurance that a tax authority gives to a taxpayer on how certain aspects of taxation will be dealt with in that specific case.

An advance pricing arrangement is a type of tax ruling, issued by a tax authority to determine the method and other relevant details of pricing to be applied to a transfer of goods or services between companies.

The new rules will be applied from 1 January 2017. Endit