Multinational companies will no longer be able to manipulate tax rules in different European states to minimise their taxes.
Under a new European directive, all European Union countries will automatically exchange information on tax rulings.
The Economics and Financial Affairs Council of the European Union has agreed to set up a central database of tax rules to stop companies exploiting legal loopholes to reduce the amount of tax they pay in different EU countries.
The council explained different tax authorities were unaware of cross-border rulings in other member states which might affect their own tax policies.
The new directive allows tax authorities to share this information without having to make a formal request to their counterparts in other states.
The database will be updated at least every six months.
Tax exploitation curbed
Jean-Claude Juncker, president of the European Commission said: “The measure is aimed at preventing tax authorities offering companies advantageous tax treatment. They are less likely to do so if they know their decisions are open to review by other states.
“The database will also prevent aggressive tax planning by certain companies and will help harmonise taxes across the EU.
“The current system does not work and is open to exploitation. Different rules across different countries allow some companies to benefit at the expense of others.
“We want to eliminate any unfair competition.”
The directive will be signed off at the next European Council meeting and will come into force from January 1, 2017.
The directive has arisen from EU investigations into favourable tax rulings agreed by some governments with multinational brands like Apple and Starbucks.
The council also alleged some tax authorities were refusing to hand over sensitive tax information to prevent rival tax authorities from reviewing the arrangements.
The data exchange pre-empts a common reporting standard agreed among almost 100 countries by the Organisation of Economic Cooperation and Development (OECD).
Part of the standard is an automatic exchange of corporate tax information and an effort to make companies pay tax in the countries where profits are made rather than switching their earnings to low tax jurisdictions.
Details of the proposal are due to go before G20 finance ministers, who meet today (October 8, 2015) in Lima, Peru.