The area of administrative cooperation in taxation between member states has undergone several changes. The European Commission has examined the flows resulting from the automatic exchange of such information over the 2015-2017 period and a positive result emerges, while highlighting the need for improvements.

Achievements

Community legislation has seen several interventions called DAC (Directive on Administrative Cooperation). The Commission’s final report merely analyzed what results have been achieved in light of the objectives set by the following directives:

• DAC1 (2011/16/EU) mandated as a target for member states to send, by 2017, information on at least three of the five categories of income and assets: namely, income from employment, executive compensation, life insurance products, pensions, as well as property and real estate income. In tax years 2015, 2016 and 2017 (first half of the year only), a total of 16 million taxpayers’ data was collected with a counter value of 120 billion euros. At the level of flows, emigration countries prove to be major recipients of information. Overall, just 2 percent of taxpayers for whom an exchange of information took place were associated with the relevant tax identification code (name and date of birth) issued by the recipient country. With regard to the usability of the data, differences are observed according to the type of information transmitted: high linkage rates for positions reported in relation to employment income and pensions. Finally, the most frequent ways of using the information are risk assessment and personal income tax assessments.
• DAC2 (Directive 2014/107/EU) covered the automatic exchange of information on financial accounts (year-end account balances, dividends, interest, gross receipts and other investment income paid into the account during the year). The DAC2 implements within the EU the common reporting standard developed by the OECD. In the six-month period between mid-September 2017 and March 2018, information on nearly 9 million accounts was exchanged, with Luxembourg valuing 80 percent by value of the amounts out of the total of 2.919 billion euros. The inclusion of the tax identification code is much more frequent than DAC1, as financial institutions fulfill their customer verification obligations. Again, risk assessment appears to be the most common reason for using the information, followed by tax audits. Many member states also reported using the information for awareness campaigns.
• Instead, DAC3 (Directive 2015/2376/EU) provided for the sharing of information on cross-border prior rulings and prior transfer pricing agreements issued against a person or group of persons other than individuals. DAC3 has produced a significant increase in information transparency. In 2017, nearly 18,000 rulings were entered into the central registry. Given the recent implementation, there is currently no indication as to how the information will be used.

Conclusion

The main benefit of automatic information exchange is to provide tax administrations with useful information to combat cross-border tax fraud, evasion and avoidance. It is difficult, however, to quantify the benefits in terms of increased tax revenues. The information acquired through automatic exchange, in fact, represents in most cases only a portion of that used to assess higher taxes. More concretely, the data automatically received from abroad helps to delineate the profile of taxpayers at risk. Finally, not to be forgotten is another important benefit that lies in the deterrent effect on taxpayers related to the increased use of exchanged information.