Spontaneous exchange of information between EU tax authorities

28 August 2015

In an increased effort to combat tax fraud and tax evasion, the tax authorities in the EU are now obligated to spontaneously exchange information in certain situations.

One of the benefits of the internal market is that EU citizens and businesses have the freedom to move, operate and invest across national borders.

Due to the fact that direct taxation is not harmonised across the EU, this freedom can imply that some taxpayers manage to avoid or evade tax in their country of residence.

In order to prevent this, the tax authorities in the EU have recently agreed to cooperate more closely so as to be able to combat tax fraud and tax evasion more effectively.

Hence, EU member states are now obligated to spontaneously exchange information with other countries in certain situations.

The information that must be spontaneously exchanged concern binding rulings etc. with a cross-border element linked to legal entities and “unilateral advance transfer pricing agreements”.

If a binding ruling etc. involves the processing of data on both legal entities and individuals, information on both legal entities and the involved individuals are covered by the exchange.

Binding rulings etc. exclusively involving the processing of data on individuals are not subject to spontaneous exchange of information.

A unilateral advance transfer pricing agreement is a binding ruling related to transfer pricing defined as a prior agreement between the tax authorities in a member state and a taxpayer that may relate to establishment of principles for prices and terms of controlled transactions for a given future period. The agreement may also cover establishment of principles for determining the income of a permanent establishment for a given future period.

When processing requests for binding rulings etc., the tax authorities must exchange information spontaneously with the tax authorities in another EU member state if the information is deemed to be relevant for the tax authorities in the other EU member state based on an individual assessment.

Cases concerning binding rulings etc. that are settled as of March 2015 will be covered by the obligation to spontaneously exchange information.

Prior to the exchange of information, the taxpayer will be informed of the tax authorities' obligation to exchange relevant information with other member states' tax authorities.

The information shall be forwarded to the relevant tax authorities as soon as possible and no later than one month after the binding ruling has been issued by the tax authorities.

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge.