European Commission’s tax rulings proposal may prove ambitious

Yesterday’s proposal by the European Commission on the automatic exchange of information on tax rulings marks the latest attempt by the commission to clamp down on corporate tax avoidance.

Ever since the Luxembourg leaks scandal erupted in the early weeks of Jean-Claude Juncker’s presidency of the European Commission, the former Luxembourg prime minister has vowed to put corporate tax avoidance at the heart of his five-year tenure.

The man responsible for the EU’s economic portfolio – former French finance minister Pierre Moscovici – has also made no secret of his desire to prioritise taxation.

Yesterday’s announcement that countries will be obliged to share information on tax rulings with other member states and the European Commission on a quarterly basis, starting from January 1st next year, had been expected. It follows similar rules on so-called “automatic exchange of information” on individuals’ savings accounts last year.

Under the proposal – which must be approved unanimously by all 28 member states by the end of the year – countries must also provide details of all tax rulings offered over the last 10 years, a provision that is likely to cause a huge logistical challenge for member states and the commission.

While countries will have until the end of 2016 to furnish details of the tax rulings offered during the previous decade, the proposal appears at this stage to be overly ambitious.

Potential loophole

Another potential loophole in the commission’s proposal is the use of the term “tax ruling”. Technically, Ireland does not offer “rulings” to companies, for example, although commission officials yesterday stressed that the terminology is broad enough to encompass all kinds of tax deals offered to companies.

Moscovici yesterday said the commission was not questioning the concept of “tax rulings” per se.

“It’s not the principle of the tax ruling that we are attacking. It’s not a question of regulating these in any way. Our proposal is a question of transparency,” he said. He also stressed that the commission remained “pro-business”, pointing out that business was “not adverse to transparency”.

Ireland has said it is fully ready to engage with the automatic exchange of tax rulings proposal, emphasising that it is already fully transparent in its tax policy.

Focus will now turn to the proposed revival of the Common Consolidated Corporate Tax Base (CCCTB) which was strongly opposed by a number of member states, not just Ireland, in its current form. Whether the Commission comes up with a radically recalibrated version of the 2011 proposal will be a key question for Irish officials over the coming months.