Following months of criticism of corporate tax avoidance, European Commission President Jean-Claude Juncker last November openly admitted that preliminary tax agreements with companies did “not always comply with general ethical and moral standards.”
This, he argued, is why E.U. member states should in the future automatically notify each other about tax rulings. It was time to put an end to hidden tax benefits for companies, he added. But this is easier said than done.
A draft bill on the automatic exchange of information about tax rulings has been around since March. And all 28 E.U. countries insist that they intend to approve it by no later than the end of the year.
But, once again, the devil is in the details. Discussions over the minutiae of the draft legislation had hardly begun when opponents began speaking up.
Great Britain, in particular, is applying the brakes. The government in London doesn’t like the fact that information exchange is to be retroactive. All tax rulings agreed to with companies in the past ten years would be included, according to the draft bill.
Resistance to the central transparency register comes primarily from corporate tax havens, such as Luxembourg and the Netherlands.
But Great Britain wants to shorten the retroactive period to three years, while many other countries, including Luxembourg, are arguing for five years, say officials in Brussels. This would prevent details of any potentially embarrassing deals with big firms being made public.
There is also disagreement over what exactly a tax ruling is. Does the term apply to all preliminary tax rulings for all companies, whether they are large or small? Or should it be limited to large corporations operating internationally?
Exactly which information is to be exchanged also remains controversial. Many countries, including Germany, see a “considerable need for clarification,” said an E.U. diplomat. They argue that preliminary tax rulings could contain business secrets, which should not be revealed. For instance, information about the specific countries in which a company achieves certain added value could not be exchanged automatically.
E.U. members are also not very enthusiastic about the plan to establish a central transparency register on tax rulings at the European Commission. Many governments would prefer to deal directly with each other in the automatic exchange of information, leaving the Commission out of the picture.
Resistance to the central transparency register comes primarily from corporate tax havens, such as Luxembourg and the Netherlands. The governments of these countries fear that the Commission will use the automatically provided information to launch cases on new state aid procedures.
Five cases are already underway against Luxembourg, Belgium, the Netherlands and Ireland. E.U. Competition Commissioner Margrethe Vestager has since requested information from all member states. Yesterday, she asked Germany for the first time to send concrete preliminary tax rulings for individual companies to Brussels.
But this does not necessarily lead to the conclusion that Germany can now expect an E.U. judicial inquiry into tax subsidies that were granted illegally, stressed Ms. Vestager.
Ruth Berschens is Handelsblatt bureau chief in Brussels. To contact the author: firstname.lastname@example.org