On June 12, 2013, the European Commission published a proposal to accelerate the scope of automatic information exchange within the EU to information on dividends, capital gains, and any other income from assets and financial accounts held by EU individuals. On the same date, the European Parliament (EP) approved country-by-country reporting requirements for companies active in the large extractive and logging industries and that are based in the EU or listed on EU regulated markets. Approval is still required from the Council of the EU.

In May of this year the European Commission announced its plan to promote automatic information exchange as the EU and international standard by extending the scope of the EU Directive on Administrative Cooperation to cover automatic information exchange on dividends, capital gains and other types of financial income and financial accounts held by EU individuals.

In parallel to these initiatives, tax transparency and information exchange have been extensively discussed at both an EU and international level in the past twelve months. A number of measures to address these issues have been on the agenda of the EU institutions. Earlier this year, the European Parliament and the Council of the EU also reached political agreement on similar reporting requirements for certain entities active in the extractive and logging industries, under the Accounting Directive and the Transparency Directive.

European Parliament vote
During the June 12 plenary sitting, members of the European Parliament adopted the Accounting and Transparency Directives by a large majority. The legislative procedure for the two Directives is the ordinary legislative procedure, under which the EP acts as co-legislator together with the Council of the EU. The proposals require the formal approval of the Council in order to come into force.

Under the new Directives, listed and large non-listed companies with activities in the extractive industry and the logging of primary forests will be required to disclose payments made to governments. Payments to be reported include royalty and dividend payments, but also taxes on income, production or profits of companies. Payments that do not exceed EUR 100,000 in a financial year or that do not result from extractive and/or logging operations do not need to be reported.

European Commission initiative
The European Commission is proposing to extend the scope of automatic information exchange under the existing Administrative Cooperation Directive. The proposal is to exchange information on dividends, capital gains and any other financial income and account balances paid, secured or held by a financial institution for the direct or indirect benefit of an individual beneficial owner. Information would be exchanged as of January 1, 2015 in respect of taxable periods as from January 1, 2014.

Under the current text of the Directive, as of January 1, 2015, tax authorities are required to automatically exchange information in respect of income from employment, director’s fees, certain life insurance products, pensions and income from immovable property. This requirement only applies in respect of information that is available to the tax authorities of the source Member State. Under the Commission’s proposal, this limitation would not apply in respect of the new items of income to be included under the scope of the Directive.

According to the Commission, extending the scope of automatic information exchange within the EU was necessary in light of the bilateral agreements which are essentially the framework for automatic information exchange between the US and individual EU Member States as regards the application of the US Foreign Account Tax Compliance Act (FATCA).

It remains to be seen if Member States agree on the extended automatic information exchange in time for the deadlines proposed by the Commission. In the meantime, Germany, France, Spain, Italy and the UK have already announced their intention to develop and pilot a multilateral agreement for information exchange, based on the model inter-governmental agreement for the implementation of FATCA. Twelve other Member States including the Netherlands have expressed their willingness to join this initiative. It remains to be seen which initiative will eventually prevail.