The Internal Market of the European Union provides both physical persons as well as legal entities with the freedom to move, invest and operate within the boarders of the Union. However, with regards to taxation, the tax systems are not yet harmonized amongst all member-states despite double tax treaties having been in place between most countries.
In an attempt to overcome fraud and tax evasion, the central administrative organs of the EU have introduced changes into the original Council Directive 2011/16/EU, which repealed and replaces the Directive 77/799/EEC, the first legislation to ever establish a legal basis for administrative cooperation in direct taxation within the EU. The amended legislation establishes a stricter and more transparent mechanism of cooperation among all member-states, making the verification procedures easier to fulfill. The main goal is to avoid double taxation, while ensuring that the correct amount of taxes are always paid in the right territory, regardless of the place of residence, business activity, investment or even retirement of the taxpayers.
This Directive covers all taxes, except for the VAT, the customs duties, the excise duties, tax debts, as well as the compulsory social contributions, as those are already regulated by different EU legislations on administrative cooperation. The legislation applies to natural and legal persons, as well as legal arrangements, such as trusts and foundations that have their domicile in one or more EU Member States.
The 2011/16/EU explicitly states that the exchange of information must be in three (3) forms:
1. Spontaneous: This form of exchange is used when a State discovers a tax evasion concerning another Member-State, whether the infraction takes places in the country of domicile or the country of the income source.
2. Automatic: This form of electronic information exchange is applied in cross-boarder cases, where the country of residence is not the same as the country of business and tax activity. According to the Directive, the exchange of information is mandatory in five (5) categories of income and assets:
i) employment income
ii) directors fees
iii)life insurance products
iv) income and ownership of immovable property
v) pension income
The amendments have further expanded the field, by adding the following sectors:
vi) financial account information
vii) cross-boarder tax rulings
viii) advance pricing arrangements.
The above mentioned amendments have been introduced in an attempt to make the monitoring and security measures meet the common international standards (ex: OECD).
3. Upon request: This form of exchange is used when additional information on taxation is needed.
In some cases, the Directive allows a more extensive administrative cooperation to take place, if the seriousness of a particular situation requires such an action. A tighter cooperation may be operated by the presence of officials of one Member-State in the administrative offices of another, or by a simultaneous control by two or more Member-States on concrete individuals or legal persons, of common or complementary interest, on the territory of another Member-State.
The article 27 of the Directive requires a mandatory five-year report, stating the efficiency, relevance, effectiveness, coherence and EU added value of its’ application.
The present article is for informational purposes only and is subject to the disclaimer. For further information on the matter, please contact Arsen Theofanidis LLC and one of our associates will be glad to assist you!
N. Kalifatidou
Advocate – Legal Consultant
Arsen Theofanidis LLC