Implementation of the EU requirements for tax information exchange European Implementation Assessment STUDY EPRS | European Parliamentary Research Service Editor: Eckhard Binder Ex-Post Evaluation Unit PE 662.603 – February 2021 EN Implementation of the EU requirements for tax information exchange European implementation assessment In February 2020, the European Parliament's Committee on Economic and Monetary Affairs (ECON) requested to draw up an implementation report on the implementation of the EU requirements for tax information exchange: progress, lessons learnt and obstacles to overcome. Sven Giegold (Greens/EFA, Germany) has been appointed rapporteur. This European implementation assessment (EIA) has been prepared by the Ex-Post Evaluation Unit (EVAL) within the European Parliamentary Research Service (EPRS) to accompany the scrutiny work of the Committee on Economic and Monetary Affairs. EPRS | European Parliamentary Research Service AUTHORS 1. The in-house opening analysis was written by Eckhard Binder from the Ex-Post Evaluation Unit, EPRS. 2. The research paper on the implementation of the EU requirements for tax information exchange: progress, lessons learnt and obstacles to overcome, was written by Patrice Muller, Nicholas Robin and James Forrester of LE Europe Limited and Amal Larhlid, Vanessa Vazquez-Felpeto, Vasilis Douzenis and Khush Patel of PricewaterhouseCoopers LLP. The research paper was written at the request of the Ex-Post Evaluation Unit of the Directorate for Impact Assessment and European Added Value, within the Directorate-General for Parliamentary Research Services (EPRS) of the Secretariat of the European Parliament. To contact the authors, please email: [email protected] ADMINISTRATOR RESPONSIBLE Eckhard Binder, Ex-Post Evaluation Unit, EPRS. To contact the publisher, please e-mail [email protected] LINGUISTIC VERSIONS Original: EN Manuscript completed in February 2021. DISCLAIMER AND COPYRIGHT This document is prepared for, and addressed to, the Members and staff of the European Parliament as background material to assist them in their parliamentary work. The content of the document is the sole responsibility of its author(s) and any opinions expressed herein should not be taken to represent an official position of the Parliament. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European Parliament is given prior notice and sent a copy. Brussels © European Union, 2021. PE 662.603 ISBN: 978-92-846-7700-9 DOI: 10.2861/433189 CAT: QA-03-21-028-EN-N [email protected] http://www.eprs.ep.parl.union.eu (intranet) http://www.europarl.europa.eu/thinktank (internet) http://epthinktank.eu (blog) Implementation of the EU requirements for tax information exchange Table of frequently used abbreviations and acronyms AEOI automatic exchange of information AML anti-money-laundering APA advance pricing agreement ATR advance tax ruling BEPS base erosion and profit shifting BO beneficial ownership CbCR country-by-country report CCN common communication network Commission European Commission CRS common reporting standard DAC Directive on Administrative Cooperation DF director's fees DG directorate-general EESC European Economic and Social Committee EC European Commission ECA European Court of Auditors EI income from employment EIA European implementation assessment EOIR exchange of information on request EP European Parliament EPRS European Parliamentary Research Service EU European Union EUR euro FATCA Foreign Account Tax Compliance Act IP immovable property LIP life insurance products MNE multinational enterprise OCTs overseas countries and territories OECD Organisation for Economic Co-operation and Development PEN pensions STD Savings Tax Directive TIN taxpayer identification number US United States I EPRS | European Parliamentary Research Service Table of contents Table of frequently used abbreviations and acronyms ________________________________ I PART I. IN-HOUSE INTRODUCTORY ANALYSIS______________________________________ 1 Executive summary ____________________________________________________________ 1 1. Introduction ________________________________________________________________ 3 1.1. Context of Directive 2011/16/EU ______________________________________________ 3 1.1.1. Amendments to the DAC since 2011____________________________________________ 5 1.1.2. Implementing regulations ___________________________________________________ 7 1.2. Context of the study (DAC1-4) ________________________________________________ 8 1.2.1. Commission evaluation and reports ____________________________________________ 8 1.2.2. European Parliament committees on tax issues ____________________________________ 9 1.2.3. Council of the European Union_______________________________________________ 10 1.2.4. European Court of Auditors' special report ______________________________________ 11 1.2.5. European Economic and Social Committee opinion ________________________________ 11 1.3. Scope and methodology of the study _________________________________________ 11 2. Scope of the DAC and its amendments_________________________________________14 2.1. Forms of income and capital covered by the DAC1-2 _____________________________ 14 2.2. Cross-border tax rulings and advanced pricing arrangements (DAC3) ________________ 14 2.3. Country-by-country reports (DAC4) ___________________________________________ 15 3. Transposition of the DAC1-6 _________________________________________________16 3.1. Transposition by Member States _____________________________________________ 16 3.2. Past and present infringement procedures _____________________________________ 16 4. Data analysis ______________________________________________________________18 4.1. Data availability and limitations ______________________________________________ 18 4.2. National data sources ______________________________________________________ 19 II Implementation of the EU requirements for tax information exchange 5. Effectiveness of the DAC ____________________________________________________21 5.1. Market reactions to the DAC ________________________________________________ 21 5.1.1. Income categories ________________________________________________________ 21 5.1.2. Circumventions and loopholes _______________________________________________ 22 5.2. Obstacles to the exchange of information______________________________________ 23 5.2.1. Legal obstacles __________________________________________________________ 23 5.2.2. Practical obstacles ________________________________________________________ 23 6. External coherence of the DAC _______________________________________________25 6.1. Comparison between the DAC2/CRS and the FATCA _____________________________ 25 6.1.1. Global Forum cooperation on the AEOI _________________________________________ 26 6.1.2. Global Forum cooperation on the EOIR _________________________________________ 26 6.2. The DAC and the Savings Tax Directive ________________________________________ 28 6.3. The use of DAC information for other purposes _________________________________ 28 6.3.1. Anti-money-laundering provisions ____________________________________________ 28 6.3.2. Judicial assistance provisions ________________________________________________ 29 7. Efficiency, EU added value and relevance ______________________________________30 7.1. Efficiency ________________________________________________________________ 30 7.2. EU added value ___________________________________________________________ 31 7.3. Relevance _______________________________________________________________ 31 8. Conclusions _______________________________________________________________33 8.1. Main findings on effectiveness _______________________________________________ 33 8.2. Main findings on coherence _________________________________________________ 34 8.3. Recommendations ________________________________________________________ 34 MAIN REFERENCES ___________________________________________________________35 Part II: Implementation of EU requirements for tax information exchange: Progress, lessons learnt and obstacles to overcome _______________________________________________39 III EPRS | European Parliamentary Research Service Table of figures Figure 1: Number of countries to which AEOI information was sent, 2017-2019 ____________ 26 Figure 2: Global Forum EOIR – compliance ratings of EU Member States __________________ 27 Table of tables Table 1: Directive on administrative cooperation (DAC) ________________________________ 7 Table 2: EP resolution of 26 March 2019 and actions taken by the Commission ______________ 9 Table 3: Transposition of the DAC (state of play as of January 2021) ______________________ 16 Table 4: Key findings on the EU added value of the DAC _______________________________ 31 IV Implementation of the EU requirements for tax information exchange PART I. IN-HOUSE INTRODUCTORY ANALYSIS Executive summary The first part of this European implementation assessment (EIA) starts with an overview of the context of the Directive on administrative cooperation in the field of taxation (DAC), explaining the background and history of the legislative framework as well as the subsequent amendments that have been made to the directive since its adoption in 2011. It also provides a summary of the research results that are presented in the annexed research paper in the second part of the EIA. Since the academic literature on the DAC is very limited,