Ares(2016)2047607
ROOM DOCUMENT #8
Code of Conduct Group (Business Taxation)
12 April 2016
ORIGIN: Commission Services
Work Package 2015 – guidelines on the issuing of tax rulings
Background
1. As part of its 2015 Work Package the Group has agreed to develop a set of guidelines on the
conditions and rules for the issuance of tax rulings, that is standard requirements for good
practice by Member States based on general principles.1 The development of these guidelines
also forms part of the Group’s work programme under the Netherlands Presidency.2
2. Significant progress has already been made in this area and the purpose of this paper is to
review this work and propose a consolidated text based on it. The Commission Services are
taking this approach in view of the need to find common solutions at the EU level to facilitate
the effective, swift and coordinated implementation by Member States of anti-BEPS measures
at the EU level.3
Summary of previous work
3. The relevant documents are;
The Commission Services paper discussed by Working Party IV in February 2015 (see
annex 2);
The 2015 OECD BEPS Report on Action 5
;4
The guidance relating to rulings set out in the Group’s November 2010 report to
ECOFIN which considered transparency aspects of rulings (see annex 3), and;
The EU Joint Transfer Pricing Forum (‘JTPF’) advance pricing agreement (‘APA’)
guidelines.5
2015 Working Party IV Discussion Paper
4. The discussion paper dealt with aspects of rulings which were not expected to be covered by
the Commission’s proposed Directive on the automatic exchange of rulings which was
published in March 2015. The discussion paper began with an introduction on the purpose and
1 Document 14302 FISC 159.
2 Room document 1 of 2 February 2016.
3 Council conclusions on corporate taxation: base erosion and profit shifting, 8 December 2015 (15150/15 FISC 185).
4
Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 –
2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD (October 2015), p56-58.
5 ‘Guidelines for advance pricing agreements in the European Union’ in European Commission,
Communication on the
work of the EU Joint Transfer Pricing Forum, COM(2007) 71 final (26 January 2007).
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aim of rulings. This was followed by a list of fifteen suggested standard requirements for a
good rulings practice based on general principles.
2015 BEPS Action 5 Report
5. The 2015 BEPS report set out a list of best practices intended to reinforce the transparency
advancements made in the OECD framework for compulsory spontaneous exchange of
information on rulings. They are applicable to both general and taxpayer specific cross-border
rulings. The report makes separate recommendations covering the following issues;
the process of granting a ruling – recommendations A(a) to (j);
the term of the ruling and subsequent audit procedures – recommendations B(a) to (d),
and;
the publication and exchange of information – recommendations C(a) and (b).
2010 Code Guidance
6. The guidance consists of two paragraphs. These say that Member States should ensure that
their rulings procedures are set out in a transparent legal and administrative framework of
legislation or administrative guidelines. Rulings suitable for horizontal application in similar
situations should be published, be reflected in updated guidance, or be made otherwise publicly
available.
EU APA Guidelines
7. The guidelines were agreed in the JTPF in 2007. The JTPF examined the pros and cons of
APAs in depth and concluded that they provided significant advantages for taxpayers and tax
administrations, particularly the certainty over the tax treatment of the transactions in the APA.
The JTPF therefore felt that it was appropriate to identify best practices for APAs in the EU.
8. The guidelines lay down procedures for an efficient APA process and detail the stages usually
found in an APA and what should happen at each stage. They focus on bi- and multilateral
APAs but they also include a section on unilateral APAs. The guidelines envisage a four stage
APA process and describe what should happen at each stage.
9.
Comparison of EU and OECD work
10. The conclusions in the 2015 BEPS Report were originally based on the Working Party IV
proposals. Therefore, although the BEPS conclusions are more detailed, the two sets of
recommendations are very similar. There are only minor differences regarding the process of
granting a ruling. These include a general reference to EU law and specifically to state aid in
paragraph 7 of the Working Party IV document. The document also suggests that rulings
should be valid for a fixed period of time (paragraph 13), whereas paragraph B(a) of the BEPS
conclusions limit this to APAs.
11. Section B of the BEPS conclusions also covers subsequent audit/checking procedures. These
were not included in the Working Party IV paper but are an important element.
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12. Section C of the BEPS conclusions covers the publication and exchange of rulings. It says that
general rulings should be published whilst taxpayer specific rulings should remain confidential
but be exchanged under the OECD framework, bilateral treaties or EU law. The 2010 Code
guidance notes that general rulings need not be published individually. They can instead be
reflected in published guidance.
13. The EU APA Guidelines contradict neither the BEPS conclusions nor the Working Party IV
document. The Guidelines simply set out in more detail how the APA process should be
organised.
14. Therefore the work carried out so far in this area has been complementary.
State aid
15. The Commission is currently investigating whether certain tax rulings are in breach of EU state
aid rules. The investigations are led by DG Competition and are about applying Article 107
TFEU. Tax rulings should be issued in full compliance with EU law, and should not constitute
state aid pursuant Article 107 (1) TFEU
16. The draft guidelines do not consider the application of State Aid rules, which fall within the
exclusive competence of the Commission. They are therefore without prejudice to any
guidance on State Aid rules which may be presented by the Commission in the future.
Duration of a ruling
17. Rulings can be divided into two categories. The first covers situations in which events after the
ruling have been given can affect its validity. The most obvious example of this type of ruling
is an advance ruling covering a number of future years, e.g. an APA, where the economic
assumptions it was based on can quickly change. Such rulings should only be given for a fixed
period of time. This limits the scope for taxpayers to receive benefits to which they are not
entitled, e.g. where they fail (deliberately or otherwise) to notify the tax authority about
changed circumstances.
18. The second type of ruling covers situations where the validity of the ruling cannot be affected
by events after the transaction covered by the ruling. Examples of this type of ruling include
decisions where the answer is either “yes” or “no”, e.g. whether a particular transaction was
undertaken for avoidance reasons or whether certain expenditure incurred by a company is
“R&D expenditure” for the purposes of national law. However, if such rulings are based on
accurate information, future events cannot affect their validity so there is no reason for them to
be issued for a fixed period of time.
19. The same situation can arise with rulings relating to the taxation of capital gains. In such cases
the treatment of one transaction may determine the treatment of a second transaction occurring
many years later.
20. The Commission Services therefore thinks that not all rulings should be given for a fixed
period of time. Instead, rulings should be given for a fixed period of time if events occurring
after they have been issued can affect their validity.
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Definition of a Ruling
21. The Working Party IV paper concerned cross-border rulings. The 2015 BEPS Report defined
rulings as “any advice, information or undertaking provided by a tax authority to a specific
taxpayer or group of taxpayers concerning their tax situation and on which they are entitled to
rely.” However, the best practices identified in the Report only apply to cross-border rulings.6
22. When the Code Group discussed its new Work Package in 2015 it was decided to delete the
words “cross-border” from the proposed work on guidance on the issuing of rulings. This was
on the basis that paragraph A of the Code of Conduct refers to measures which affect, or may
affect, in a significant way the location of business activities in the EU. Rulings relating solely
to domestic tax measures may have this effect, for example by the relaxation of legal provisions
at an administrative level.7
23. Therefore the Commission Services believe that the conditions and rules described above
should apply to domestic and cross-border rulings. This will obviously make no difference to
Member States obligations to exchange rulings spontaneously or automatically under EU law
as these are set out in the relevant Directive.
Proposed guidelines on the issuing of rulings
24. Annex 1 contains the draft guidelines on the issuing of rulings. They reflect the BEPS
conclusions with additions and deletions made in track changes to take account of work
undertaken in the EU. These changes are described below.
25. The introductory paragraph sets out the definition of a ruling for the purposes of the guidelines.
It is taken from the BEPS conclusions. The difference is that the draft guidelines are not
restricted to cross-border rulings as is the case in the OECD framework.
26. The changes to paragraph A(c) [insert a reference to EU law and state aid].
27. In paragraph A(h) specific references to APA documentation requirements have been deleted as
these are covered in the EU APA Guidelines, which are referred to in the new paragraph A(k).
Other general references to APAs in the text have not been deleted.
28. Paragraph B(a) has been altered to reflect the Commission Services view that in many cases
rulings should be issued for a fixed period of time.
29. Paragraph C(a) has been amended to remove the reference to the official languages of the
OECD and “general rulings”. The latter is a term relevant to the OECD framework for the
compulsory spontaneous exchange of information on rulings. It has been replaced with a
reference to “rulings suitable for horizontal application”.
30. The 2015 BEPS Report says that general rulings should be published. This has been retained
but the alternative practice of publishing the content of such rulings as updated guidance has
been added, to reflect the guidance agreed by the Group in 2010.
6 OECD,
Countering Harmful Tax Practices More Effectively, p47 & 56.
7 Room document 1 of 21 October 2015.
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31. Paragraph C(b) deals with the exchange of information. It has been altered to focus on the
legal obligations in the EU. Obviously, the question of whether a ruling should be exchanged
will be determined by the relevant hard and soft law instrument.
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Annex 1
Code of Conduct: guidelines on the conditions and rules for the issuance of tax rulings –
standard requirements for good practice by Member States [DRAFT]
A. Process of granting a ruling
a. Official rules and administrative procedures for rulings should be identified in advance and
published, and they should include: (i) the conditions for the applicability of the ruling process;
(ii) the grounds for denying a ruling; (iii) the fee structure, if applicable; (iv) the legal
consequences of obtaining a ruling; (v) possible sanctions for incomplete or false information
provided by a taxpayer; (vi) the conditions for revoking, cancelling or revising a ruling; and
(vii) any other guidance that is deemed necessary in order to make the rules sufficiently
comprehensive and clear to taxpayers and their advisors.
b. Tax rulings should be issued, and any administrative discretion in granting a ruling should be
exercised, only within the limits of, and in accordance with, the country’s relevant domestic tax
law and administrative procedures, and should be limited to determining how that law and/or
any administrative procedures apply to one or more specific operations or transactions
intended, planned or undertaken by the taxpayer.
c. Tax rulings should respect applicable international obligations that are incorporated into
domestic tax law, for instance, obligations under relevant bilateral treaties
.
d. Tax rulings should be issued in writing.
e. Tax rulings should only be issued by the competent government office or authority in charge of
this task. Where a ruling is granted by another government office, it should be subject to
approval by the competent office.
f.
It is recommended that at least two officials are involved in the decision to grant a ruling or
there is at least a two-level review process for the decision, in particular in cases where the
applicable rules and administrative procedures explicitly refer to discretion or the exercise of
judgement by one of the relevant officials.
g. Tax rulings should be binding on the tax authority (to the extent permitted by domestic law
), provided that the applicable legislation and
administrative procedures and the factual information on which the ruling is based do not
change after the ruling has been granted.
h. Taxpayers should apply for a ruling in writing and provide a full description of the underlying
operations or transactions for which a ruling is requested. The information should be included
in a file supporting the ruling application (the “ruling file”). The ruling file should also include
information on the methods and facts for determining the key elements of the tax authority’s
view. Any additional information or relevant facts which are brought to the attention of the tax
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authority (i.e. in meetings or oral presentations) should be recorded in writing and also be
included in the ruling file.
i.
Information concerning the applicant (including taxpayer’s name, tax residency, tax
identification number, commercial register number for corporations and companies) and tax
advisor/tax consultant involved should be included in the ruling file and/or the ruling itself.
Before taking a decision, the person/s providing the ruling should check that the description of
the facts and circumstances is sufficient and justifies the envisaged outcome of the ruling. They
should also check that the ruling outcome is consistent with any previous rulings concerning
similar legal issues and factual circumstances.
B. Term of the ruling and subsequent audit/checking procedure
a. APAs should only be for a fixed period of time and should be subject to review before being
extended.
b. Taxpayers should notify the tax authority about any material changes in the facts or
circumstances on which a taxpayer-specific ruling (including an APA) was based, as soon as
possible so that the tax administration can assess whether to exchange this information with
another country. As part of this notification process, taxpayers should notify tax administrations
of any material changes to the related parties with which they transact (for transactions covered
by the ruling) and any other changes which would impact on who information should be
exchanged with.
c. Effective administrative procedures should be in place to periodically verify that the factual
information relied upon and assumptions made when granting taxpayer-specific rulings remain
relevant throughout the period of validity of the ruling. This may be particularly necessary in
the case of APAs where any underlying assumptions and decisions could be affected by
changes in economic circumstances.
d. Rulings should be subject to revision, revocation or cancellation, as the case may be, in the
following circumstances:
1. if the taxpayer makes a misrepresentation or omission in applying for the ruling that calls
into question the validity of the ruling;
2. if the relevant laws change;
3. if there is a relevant and significant change (i) in the facts or circumstances upon which the
ruling was based or (ii) in the validity of the assumptions made.
C. Publication and exchange of information
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a.
and made easily accessible to other tax
administrations and taxpayers. Ideally,
rulings should be published on the tax
administration’s website. If not published in full, the website should contain short summaries
with links to where the ruling is accessible in full. Publication should take place as soon as it is
practicable after the ruling is granted and where possible within six months.
b.
the OECD framework for compulsory spontaneous exchange of information on rulings,
or
.
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Annex 2
Working Party IV Proposals, February 20158
1. Tax rulings should be issued in writing.
2. Taxpayers should apply in writing and give a full description of the underlying operations or
transactions. Any additional information or relevant facts which are brought to the attention of
the competent authority orally (i.e. in meetings or oral presentations) shall take the form of
written minutes and be included in the file of the application for a ruling.
3. Either the application file (preferable) or the ruling decision (confirmation) itself shall include a
full set of information on the applicant (taxpayer with name, residence, VAT n° or tax
identification number, commercial register number for corporations and companies), the tax
adviser/tax consultant involved.
4. Tax rulings should be binding on the tax authority provided that the applicable legislation and
disclosed structures and facts of the case do not change ex post.
5. Changes in the economic environment that alter the relevant and significant underlying facts
and circumstances of a specific case (i.e. significant changes in personnel cost or cost of raw
material; in the number of staff or increases /reduction in the sales) should trigger a revision or
withdrawal of a ruling, even within the period for which it was originally issued to apply.
6. Tax rulings should be issued only within the limits of the relevant national tax law, i.e. how
national tax laws apply to one or more specific operations and transactions intended or planned
by the taxpayer.
7. Tax rulings should be issued in full compliance with EU law, and should not constitute state aid
pursuant Article 107 (1) TFEU.
8. Tax rulings should respect double taxation conventions concluded by a Member State.
9. Official rules and administrative procedures on rulings should be identified in advance and
published, e.g. fee structure, legal consequences, possible sanctions for incomplete or false
information provided by a taxpayer within the framework of national rules.
10. Tax rulings should only be issued by the competent government office or authority in charge of
this task.
11. It should be obligatory that at least two officials (either internally or externally shown) give
their approval of decisions on rulings or confirm applications for rulings.
12. Before taking a decision, the competent authority(ies) should check that the description of facts
and circumstances is sufficient and justifies the envisaged outcome of the ruling.
13. Duration: tax rulings should only be valid for a certain period of time, e.g. 5 years.
8 Commission Services,
Working Party IV Discussion Paper: possible guidelines for cross-border tax rulings (meeting
of 6 February 2015).
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14. Information on the methods for determining some of the key elements (transfer prices, mark-
ups, interest rates, profit margins; etc.) should be included in the file of the ruling.
15. The fact that a tax ruling has been issued to a company should be made public in a registry
which should also state the key issues contained in the ruling and its duration.
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Annex 3
Code of Conduct Group – guidance on administrative practices, November 20109
The Group’s report to ECOFIN in November 2010 notes that, with respect to improvements in the
field of transparency the Group agreed the following guidance;
a. To the extent that a MS accommodates the advance interpretation or application of a legal
provision to a specific situation or transaction of an individual taxpayer, the underlying
procedures should be embedded in a transparent legal and administrative framework that is
public legislation or administrative guidelines.
b. Where the advance interpretation or application of a legal provision to a specific situation or
transaction of an individual taxpayer is suitable for horizontal application in similar situations,
this interpretation or application should be published or be reflected in updated guidance, or be
made otherwise publicly available.
9 Document 16766/10 FISC 139.
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