Release of the European Commission’s tax transparency package
Commission of European Union released 18 March 2015 new tax transparency package. The package is aimed to put down tax avoidance and transfer pricing arrangements aimed to shift profits to low tax jurisdictions in European Union. European Commission has started to take actions against tax avoidance from 2013, and in summer 2014 it launched investigations of tax rulings between Apple and Ireland, Starbucks and Netherlands and Fiat Finance and Trade and Luxembourg. Also, in autumn 2014 Commission started investigations of Amazon and Luxembourg. The aim of new package is to provide more transparency to Member States’ tax rulings and regimes. Idea is to provide exchange of tax rulings and to understand where companies pay their taxes. Its aim is also to tackle down aggressive tax planning.
Currently EU legislation does provide exchange of information only in exceptional cases. New legislation sets obligation for Member States to inform European Union of their advanced tax rulings quarterly basis. Obligation of providing information of tax rulings would, according to Commission, help to monitor tax practices in Member States. Information submitted to European Union shall include following:
- Name of taxpayer and group
- A description of issues addressed in the tax ruling
- A description of criteria used to determine an advance pricing arrangement (APA)
- Identification of the Member State(s) most likely to be affected
- Identification of any other taxpayer likely to be affected (others than natural persons)
Commission enforces transparency rules by opening infringement procedure against Member States that do not submit information according its rules. Also, new rules make investigating tax rulings easier: Commission will not face anymore refusal to supply information based on commercial secrecy or public policy. Current package is only a start for European Commission: next package is set to arrive in summer 2015.
How this will affect companies in Latvia, Lithuania and Estonia?
As Baltic States are part of European Union, these rules will naturally apply. However, new rules will not create administrative burden to undertakings, as exchange of information will happen between tax authorities. If undertaking has received favourable tax treatment from Member State and it has potential to distort common market it is possible that Commission will open investigation of unlawful State Aid. Transparency package provides more tools for investigation in State Aid matters. Commission also currently considers disclosure requirements for multinational companies. These rules do not require immediate actions for Baltic companies.
Tony Koivula, lawyer of the Gencs Valters Law Firm in Tallinn.
Practising in fields of Corporate Income Tax in Latvia, Estonia, Lithuania
T: +371 67 24 00 90
F: +371 67 24 00 91