Exchange of Information on Tax Rulings – A New Reality
By Gesina van de Wetering
Posted: 14th October 2016 08:35
1 EU: Automatic Exchange of Information of Tax Rulings
On 31 August 2016, the Dutch State Secretary of Finance submitted the awaited draft ‘Act on the exchange of information on rulings’ (the Act) to the Lower House.This Act implements the recent amendments made to Council Directive 2011/16/EU (the Directive), introducing automatic exchange of information regarding tax rulings between Member States. The Act is generally in line with the Directive, and applies both to ‘cross border’ advance tax rulings (ATR’s) and advance pricing agreements (APA’s).
As from 1 January 2017, automatic exchange of information will apply to ATR’s/APA’s that are issued, amended or renewed:
(i) on or after 1 January 2017 (‘new’ Rulings); and
(ii) between 1 January 2012 and 31 December 2016, provided that Rulings issued, amended or renewed between 1 January 2012 and 1 January 2014 are still valid on 1 January 2014; (‘old’ Rulings).
The information regarding ‘new’ Rulings will be exchanged on a bi-yearly basis, within three months following the end of the respective six months-period, whereas information regarding ‘old’ Rulings will be exchanged ultimately prior to 1 January 2018.
Similar to the Directive, the Act provides for a very broad definition of a Ruling , and includes any communication, whether or not in writing or effectively used, that:
(i) is made towards a person or group of persons respectively that can rely thereon;
(ii) in case of an ATR: concerns the interpretation or the laws regarding the application or enforcement of tax laws;
(iii) in case of an APA: determines an appropriate set transfer pricing criteria for transactions between associated companies, or for the allocation of profits to a permanent establishment;
(iv) concerns a ‘cross border’ transaction, or the possible presence of a permanent establishment in the Netherlands or abroad;
(v) has an ‘advance’ element (which also exists if the Ruling is granted before the filing of the tax return covering the period in which the transactions or activities took place).
Therewith, the Act covers any type of rulings (to be) issued by the Dutch tax authorities, including ‘cross border’ APA’s, PE rulings, informal capital rulings, rulings on the treatment of hybrid instruments or entities, and rulings on the application of the Dutch participation exemption.
Under the Act, a ‘basic set’ of information (including the identification of the person(s) concerned, the type of the Ruling, and a summary thereof) must be exchanged with all Member States, even if this information would not be relevant for the levy of taxes in the respective Member State (e.g. also if the only cross-border link of a Ruling would be with third States). The Dutch tax authorities do not have any discretion as regards the ‘basic set’ of information to be exchanged, except that the information may not lead to the disclosure of a commercial, industrial or professional secret, or contravene public policy. Although taxpayers do not have a formal right to be informed, according to the State Secretary the Dutch tax authorities will contact taxpayers in case they doubt the nature of the information to be exchanged.
3 OECD: Spontaneous Exchange of Information of Tax Rulings
The Directive can be seen as a direct result of the intensified focus within the OECD/G20 on transparency, being one of the three pillars to counter harmful tax practices. On 5 October 2015, the OECD presented its report ‘BEPS Action-5’ that aims to improve transparency, inter alia, through ‘compulsory’ spontaneous exchange of information on tax rulings.
BEPS Action-5 identifies six categories of ‘cross border’ tax rulings in respect whereof a basic set of information must be exchanged spontaneously. Although the deadlines are somewhat different, similar to the Directive (and the Act), BEPS Action-5 covers both old and new Rulings, and applies to Rulings issued, amended or renewed:
(i) on or after 1 January 2010 and still in effect as per 1 January 2014 (‘old’ Rulings); and
(ii) as from 1 April 2016 (‘new’ Rulings).
The information regarding the first category Rulings will be exchanged ultimately before 31 December 2016, and regarding the second category within three months following the issuance of the Ruling.
The Act does not contain any provisions regarding exchange of information on Rulings as envisaged in BEPS Action-5, as according to the State Secretary current Dutch legislation already provides for such legal basis.
According to current Dutch legislation, the Dutch tax authorities may only spontaneously exchange information (i) in certain specific described situations, (ii) if this is based on international (or EU) rules on the assistance on the levy of taxes (e.g. bilateral tax treaties, TIEAs), and (iii) provided this would not lead to the disclosure of a commercial, industrial or professional secret, or contravene certain principles (e.g. the principle of reciprocity).
4 A New Reality
Cleary, the Act will result in more transparency for the Member States. The question, however, can be asked whether this measure is the best (proportional) tool to address harmful tax practices, and would not negatively impact the competitiveness of EU companies. According to the Dutch Minister of Foreign Affairs, automatic exchange of information on tax rulings may confront taxpayers with double taxation and tax disputes, and therewith with uncertainty and costs. In view thereof, I wonder whether a more proportional and effective measure could not have been found in the context of the global introduction of country-by-country reporting (being part of BEPS Action 13), which requires taxpayers to have a copy of Rulings with foreign jurisdictions in their master and local file. Requiring taxpayers to report the existence of such rulings in their annual tax return, may result in a more targeted approach by the relevant tax authorities and could avoid unnecessary flows of (sensitive) information about (compliant) companies between States.
Gesina is a leading International Tax and Corporate/M&A lawyer. She started her career as an inspector at the Dutch tax inspectorate for large enterprises, and was an official and assistant to the State Secretary of Finance at the Ministry of Finance.
For many consecutive years now, Global Chambers acknowledges Gesina as a leading individual in the Netherlands, and as a Foreign Expert for Turkey, both in the field of Tax and Corporate/M&A. Her broad international client base consists of major players in the telecoms, transport and energy sector.
As a well-respected lawyer in the commercial sector, Gesina is frequently asked to speak at international seminars, and has participated in various tax expert groups.
Van Campen Liem was formed in February 2012, with offices in Amsterdam and Luxembourg. Van Campen Liem offers high-quality expertise and advice in corporate transactions and international tax structuring. The firm’s team consists of tax lawyers, corporate lawyers, notaries and funds lawyers to ensure complete support in all aspects of corporate and transactional work, both domestic and international. The firm’s strongest focus areas are M&A, private equity, venture capital, investment funds and corporate restructurings. Van Campen Liem has unique experience in the emerging markets arena, in particular having built a solid Turkey and Central and Eastern Europe (CEE) practice over the years.
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Gesina van de Wetering can be contacted on +31 20 760 1642 or by email at firstname.lastname@example.org