COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on tax transparency to fight tax evasion and avoidance
Date: 2015-03-18
Institutions: European Commission
Subjects: European tax cooperation, action programme, administrative transparency, corporation tax, exchange of information, prevention of delinquency, tax avoidance, tax evasion, tax inspection













EUR-Lex - 52015DC0136 - EN











|



52015DC0136

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on tax transparency to fight tax evasion and avoidance /* COM/2015/0136 final */









INTRODUCTION 
Fighting tax evasion is essential to securing greater fairness and
economic efficiency in the Internal Market, in line with the Commission’s top
political priorities[1].
Tackling corporate tax avoidance is closely linked to this agenda. 
Unlike tax evasion, which is illegal, tax avoidance normally falls
within the limits of the law. However, many forms of tax avoidance go against
the spirit of the law, stretching the interpretation of what is
"legal" as far as possible to minimise a company's overall tax
contribution. Using aggressive tax planning techniques, some companies exploit
legal loopholes in tax systems and mismatches between national rules to avoid
paying their fair share of taxes. Moreover, tax regimes in many countries allow
companies to artificially shift profits to their jurisdictions, with the effect
of encouraging this aggressive tax planning.
These activities undermine fair burden sharing amongst tax-payers,
fair competition between businesses and fair play between Member States in
collecting the tax on profits that they are rightfully due. Taxation policy is
mainly set at national level. However, with a view to securing fairer taxation
and upholding the principle that taxation should reflect where economic
activity takes place, the Commission is intensifying efforts to help Member
States to combat tax evasion and avoidance in the Internal Market. 
In addition to necessary efforts by Member States to simplify and
streamline tax systems, tax transparency is a crucial element in meeting these
goals. Aggressive tax planning, harmful tax regimes and tax fraud all rely on
an environment of complexity and non-cooperation to thrive. Combatting tax
evasion and avoidance therefore requires more openness between tax authorities
and greater cooperation between governments. There must also be a stronger onus
on companies to engage in tax practices that are transparent and fair. 
The EU has consistently shown leadership in good governance in tax
matters and, for many years, promoted principles in this area which are now
gaining traction worldwide. The recent and unprecedented momentum behind the
battle against tax evasion and avoidance has been fuelled largely by the public
demand for fair taxation in difficult times. This new drive to ensure that
everybody pays their share is delivering considerable results, at EU and
international level. The EU has actively contributed to the OECD/G20 work to
revise transparency standards and tackle abusive tax practices worldwide. The
BEPS[2] project,
due to be completed in 2015, should lead to a fundamental reform of the global
tax environment, making it far more hostile to evaders and aggressive tax
planners in the future. 
Despite this progress, however, further measures are needed to
enable Member States to protect their tax bases and businesses to compete
fairly in the Internal Market, while also ensuring due compliance with
fundamental rights, including the right to personal data protection.
With this in mind, the present Communication is presenting a Tax Transparency
Package, focussed on the most urgent issues to be addressed in this field. This
is the first step in the Commission’s ambitious agenda for 2015 to fight tax
evasion and avoidance. It will be followed before the summer by a detailed
Action Plan on corporate taxation, which will set out the Commission's views on
fair and efficient corporate taxation in the EU and propose a number of ideas
to achieve this objective, including ways to strengthen discussions in the
Council and to re-launch the proposal for a Common Consolidated Corporate Tax
Base (CCCTB). The CCCTB could serve as an effective tool against corporate tax
avoidance in the EU, in addition to cutting costs and administrative burdens
for businesses in the Internal Market. 
INCREASING
TAX TRANSPARENCY: 
MUCH ACHIEVED, MUCH MORE TO ACHIEVE 
Major advances have been made towards greater transparency and
cooperation between EU tax administrations in recent years. 
Since 1997, Member States have politically committed to principles
of fair tax competition, under the Code of Conduct on Business Taxation. They
work together in the Code of Conduct Group to scrutinise tax regimes and to try
to safeguard principles of good governance in tax
matters in the Internal Market. While this Code, which
is politically endorsed by Member States, is not legally binding, it has
nevertheless been successful in eliminating a number of harmful tax practices
over the years.
In 2012, the Commission presented an Action Plan with over 30
measures to combat tax fraud and evasion. Many of these focussed specifically
on enhancing tax transparency and information exchange. Important progress has
been made in taking these measures forward, with a number of key initiatives
already completed. 
The revision of the Directive on Administrative Cooperation, adopted
by the Council in December 2014[3],
was a significant achievement. It ensures that the EU has a solid legislative
framework for the automatic exchange of information and spells the definitive
end of bank secrecy for tax purposes across the EU. It requires Member States
to automatically exchange a wide range of financial information with each
other, in line with the new OECD/G20 global standard for automatic exchange of
information between jurisdictions. 
The adoption of negotiating mandates for stronger tax agreements
with Switzerland, Andorra, Monaco, San Marino and Lichtenstein also marked an
important advance in the EU's tax transparency agenda. The Commission is
currently finalising these negotiations with the five neighbouring countries,
and intends to present a proposal for their signature by summer 2015. The
agreements will be significantly more ambitious than previously foreseen, as
they will be aligned to the new global standard and will secure the widest
scope of automatic information exchange between the parties. 
Other achievements related to the 2012 Action Plan include the
adoption of the revised Parent-Subsidiary Directive to prevent certain abusive
tax practices by companies, the creation of a Platform for Tax Good Governance
and the launch of the VAT Forum for business-to-tax authority dialogue. Certain
practical initiatives have also been implemented to facilitate tax
transparency, such as standard forms for exchange of information, and
computerised formats for automatic information exchange in relation to
non-financial income. As regards tracing money flows, tax and customs
authorities are now cooperating to make better use of information on cash
movements. 
The fourth Anti-Money Laundering Directive, which has just been
agreed by the co-legislators, also feeds into the goal of greater transparency
in capital flows. Though aimed specifically at better combatting money
laundering and terrorism financing, the introduction of central registers of
beneficial ownership information, accessible to Financial Investigation Units
all over Europe, will indirectly benefit the fight against tax evasion.
Work continues on other Action Plan
initiatives, to further increase transparency in tax matters. For
example, the feasibility of creating a European Tax Identification Number (TIN)
is currently being explored, as it could greatly facilitate tax administrations
in their work of identifying tax-payers for the purpose of automatic exchange
of information. Furthermore, the Commission is exploring the possibility of
extending EUROFISC, a tool for the rapid exchange of information on VAT fraud,
to cover direct taxation. This would help Member States to detect and rapidly
inform each other of recurrent fraud schemes and aggressive tax planning
trends.
The Commission will also report on Member States’ progress in
implementing the 2012 Recommendation on tax havens, which sets out minimum
standards of good governance in tax matters that the EU’s international
partners should adhere to. On the basis of this report, the Commission will
consider whether further measures may be needed to ensure that the EU has a
coherent and consistent policy on tax transparency vis-à-vis third countries.
TOWARDS
GREATER TAX TRANSPARENCY IN THE EU AND BEYOND
Despite the progress achieved, further action at EU level is still
needed, given the scale of tax avoidance[4],
the remaining gaps in terms of transparency and cooperation, the complexity of
tax systems and the sophistication of aggressive tax planning practices. 
In particular, national administrations often lack the necessary
information about the impact of other countries' tax regimes and practices on
their own tax systems. Preliminary investigations by the Commission, work
carried out by the Code of Conduct for Business Taxation Group and recent
public revelations provide real evidence of the need to introduce greater
transparency into Member States’ corporate tax regimes, for the sake of fair
tax competition. 
Tax rulings, in particular, require due attention in this regard.
Tax rulings are primarily issued to provide legal certainty and are, in
principle, not problematic. However, where they are used to offer selective tax
advantages or to artificially shift profits to low or no-tax locations, they
distort competition and erode Member States' tax bases. The Commission is
already conducting state aid investigations into a number of Member States' tax
rulings and has asked all Member States to provide information on their tax
ruling practices, to determine whether selective tax advantages are creating
competitive distortions in the Internal Market.[5] 
Strengthening the transparency requirements within its own borders
will also give the EU additional credibility in pushing for an ambitious
transparency agenda globally. 2015 is the year in which the OECD/G20 BEPS
project should be completed, and the EU should remain an active player in this
international reform process. 
With this Tax Transparency Package, therefore, the Commission is
setting out a number of measures which can be taken in the short-term to
enhance tax transparency, in order to fight against tax evasion and corporate
tax avoidance in the EU, ensure the link between taxation and the place of real
economic activity, and promote similar standards globally. 
These are: 
1.      
Establishing strict transparency for
tax rulings
Tax rulings which result in a low level of taxation in one Member
State can entice companies to artificially shift profits to that jurisdiction.
Not only can this lead to serious tax base erosion for other Member States, but
it can further incentivise aggressive tax planning and corporate tax avoidance.

Currently, there is little information exchange between national
authorities on tax rulings. Member States whose revenues are adversely affected
by the tax rulings of others cannot take the necessary action in response. In
line with the joint effort to combat corporate tax avoidance, there is an
urgent need for greater transparency and information sharing on cross-border
tax rulings including transfer pricing arrangements. 
Therefore, the Commission is putting forward a proposal for the
automatic exchange of information on cross-border tax rulings. National tax
authorities will be obliged to automatically share basic information on their
cross-border tax rulings with all other Member States, at regular intervals.
Where relevant, Member States that receive this information can then request
more details. The Commission is proposing that these new requirements be built
into the existing legislative framework for information exchange, through
amendments to the Directive on Administrative Cooperation. This will enable
automatic information exchange on tax rulings to be rapidly implemented, as the
procedures and processes to do so are already in place. 
2.      
Streamlining legislation on the
automatic exchange of information 
The agreement on the revised Savings Tax Directive in March 2014 was
a major breakthrough. It extended the scope of information to be automatically
exchanged by Member States on savings-related income. However, the ambition of
the EU Savings Tax Directive was quickly surpassed by that of the revised
Directive on Administrative Cooperation of December 2014. With this Directive,
all Member States have committed to automatically exchanging information on the
full spectrum of financial information for tax purposes, in line with the new
OECD international standard. 
Provisions of substance and procedure previously contained in the EU
Savings Tax Directive are now covered by the much wider scope of the Directive
on Administrative Cooperation. In order to avoid duplication and overlapping EU
legislation in this field, the Commission is proposing to repeal the Savings
Tax Directive as part of this Tax Transparency Package. This will ensure a
simpler and streamlined legislative framework for businesses and tax
administrations. 
3.      
Assessing potential further
transparency initiatives
The Commission will assess whether additional public disclosure of
certain corporate tax information should be introduced, in a way which goes
beyond administrative cooperation and provides public access to a limited set
of tax information of multinational companies. 
Such transparency requirements currently exist for banks (under the
Capital Requirement Directive IV) and with a focus on payments to governments
for large extractive and logging industries (under the Accounting Directive),
in the form of "country-by-country reporting" (CBCR). Extending the
obligation for public disclosure of certain tax information by multinational
companies in all sectors could place companies under closer public scrutiny and
create more awareness of their tax practices. It would also create a
level-playing field between EU companies in terms of transparency requirements
and avoid legal complexities in terms of sector definition. 
However, the objectives and scope of any such possible initiative
would need to be calibrated very carefully. In-depth analysis is needed to
determine benefits, costs and necessary safeguards in terms of e.g. data
protection, protection of business secrets etc., and look at the likely impacts
including the international competitiveness dimension, also taking into account
the work done in relation to the sectorial legislation already in force. Impact
assessment work will therefore be launched to gather and analyse the evidence
base necessary on possible options. The question of transparency requirements
on aggressive tax planning arrangements which are part of the OECD BEPS work
also needs to be considered, taking into account, for example, the costs and
benefits of transposing such rules into EU law. 
4.      
Reviewing the Code of Conduct on
Business Taxation
The Code of Conduct on Business Taxation has been an important tool
for challenging harmful tax regimes. Despite its voluntary and
inter-governmental nature, the Code has been effective in the past in
eliminating certain harmful tax practices in the Member States. However recent
cases have highlighted limitations in the scope of the Code and weaknesses in
the mandate of the Code of Conduct Group. For example, in the debate on whether
3 Member States' patent boxes were harmful or not, the Group was initially
unable to reach a decision, due to the fact that the criteria in the Code were
inadequate to evaluate this modern type of tax incentive. Tackling complex new
challenges to fair taxation and safeguarding tax transparency requires more
decisive action by the Code Group, and more rigorous monitoring to ensure that
Member States respect their commitments. The Commission is therefore reflecting
on ways in which the Code of Conduct can be improved and the Group made more
effective. These reflections will be submitted to Member States and will feed
into the Action Plan on Corporate Taxation, to be adopted before the summer.
5.      
Working towards better quantification
of the tax gap
The tax gap is the difference between tax that is due and the amount
actually collected by national authorities. Tax evasion and avoidance are not
the only contributors to the tax gap, with other factors such as administrative
errors and bankruptcies also playing a role. Nonetheless, statistics on the tax
gap provide an important indicator of the scale of wilful non-compliance in
taxation. 
There is extensive evidence that tax evasion and corporate tax
avoidance are persistent in the EU, and they are widely estimated to cost
public budgets billions of euros a year. However, the clandestine nature of
these activities, coupled with the absence of estimates in several Member
States, mean that precise figures are not available. Reliable statistics on the
incidence and impact of tax evasion and avoidance would allow for better
targeted policy measures and provide a yardstick for measuring their success. 
Therefore, the Commission, including Eurostat, will work with Member
States to explore how more comparable and reliable data on the scale and
economic impact of tax evasion and avoidance could be compiled. To this end, a
FISCALIS project group has been launched, with a view to encouraging greater
transparency between Member States on their national tax gap data and the
methodologies for calculating it. 
6.       Promoting greater tax transparency internationally
The EU has been a long-time champion of standards of good governance
in tax matters worldwide, and a strong supporter of the OECD/G20 BEPS project
to tackle corporate tax avoidance internationally. BEPS is due to be finalised
in 2015. The EU must continue to invest heavily in this project and push for an
ambitious new international tax framework. 
The BEPS project is expected to introduce measures for the
spontaneous exchange of information between tax authorities on preferential tax
rulings. Such provisions would be less ambitious that the measures proposed
today for the EU and, unlike the EU rules, would not be legally binding. The EU
will therefore continue to promote the idea of global automatic exchange of
information for tax rulings. 
The Commission is also working with the OECD and other international
partners to ensure the BEPS Action Plan takes into account the capacity
constraints of developing countries and to support them in strengthening their
tax systems and fighting against illicit financial flows. Greater financial
transparency and fairness is a key area for our partner countries to achieve
their development objectives and implement the post 2015 global development
agenda. 
In addition, as part of its work on possible further transparency
initiatives, the Commission will look into whether enhanced transparency could
also improve Member States' capacity to address harmful tax practices and
profit shifting beyond EU borders,  how this could be achieved as well as its
impact on the international competitiveness of EU companies. 
CONCLUSION
With the set of initiatives outlined in
this Communication, the Commission is starting to deliver on its commitment to
push forward a strong and ambitious agenda against tax evasion and corporate
tax avoidance. 
The European Parliament, the Council and
many actors from civil society all called for urgent and effective action to increase
tax transparency, particularly in the field of corporate taxation. This Tax
Transparency Package is a first step in responding to this call. The measures
put forward in this package can make a substantial contribution to reducing
corporate tax evasion and avoidance and securing fairer tax competition amongst
Member States. They can also support the EU's position at the forefront of the
global tax transparency agenda. 
The Commission calls upon the Council to
adopt these legislative proposals as a matter of high political priority. As a
second step, the Commission will present, by summer, further measures to
counteract tax avoidance and harmful tax competition in an Action Plan on
corporate taxation. 
[1] A New Start for Europe: Political Guidelines for the next European
Commission (July 2014)
[2] Base Erosion and Profit Shifting
[3] Council Directive 2014/107/EU amending Directive 2011/16/EU
[4] 
There are
many different estimates and reports on the scale of tax avoidance generally,
and in relation to certain companies in particular, coming from tax
administrations, NGOs, academics and press. There is no conclusive figure
quantifying the scale of corporate tax avoidance, although the general
consensus is that it seems to be substantive. One of the highest estimates
refers to the amount of € 860 billion a year for tax evasion and € 150 billion
a year for tax avoidance. The link to the study is;
http://europeansforfinancialreform.org/en/system/files/3842_en_richard_murphy_eu_tax_gap_en_120229.pdf.

] 
[5] http://europa.eu/rapid/press-release_IP-14-2742_en.htm