The EU Directive on Administrative Cooperation (DAC), enacted in 1977 and – as a standard – most recently re-adopted in 2011, has been amended several times with its scope of application broadened over the years. The DAC and its amendments tend to follow discussions on transparency and exchange of information within the Organization on Economic Co-operation and Development (OECD). Consequently, the DAC started with providing the opportunity to exchange information upon request but this shifted to the situation where more information is to be exchanged automatically.
As the OECD is recognized for the standards it sets in the field of international taxation, the exchange of information is being discussed at that level as well. OECD output has been considered input for EU legislation several times. A good example of that is the OECD report on Base Erosion and Profit Shifting (BEPS) Action Plan 12 on Mandatory Disclosure Rules, which was transposed into EU law by DAC6, the fifth amendment the DAC (for an overview of DAC amendments, click here).
The same goes for the concept of ‘foreseeable relevance’ in the DAC, which finds its origin in the OECD Model Tax Convention. Recently, the CJEU was asked to interpret the concept of foreseeable relevance (C-437/19, État luxembourgeois v L). The concept was interpreted on its own merits, taking into account textual, contextual, and teleological arguments. The CJEU interpreted the concept of ‘foreseeable relevance’ based on the DAC’s preamble and its context. Only ‘lastly’ did the CJEU refer to the OECD Model Tax Convention. Almost superfluously, it added that the concept of ‘foreseeable relevance’ in the DAC found its origin in that Model Tax Convention and that the conclusion it had already reached was in line with that original OECD concept, included in the model and explained in its Commentary.
As the concept of ‘foreseeable relevance’ is included in secondary EU law, from an institutional perspective, it is understandable that the CJEU – being a supranational body –would not want to be dependent on interpretations from other international bodies in interpreting EU legal concepts enshrined in EU secondary law, even when almost all of the EU Member States are members of that international organization. However, this may lead to different interpretations of the same concept from an EU or OECD perspective, even where the EU requirements are based on relevant OECD concepts and EU Member States are already familiar with them for years, in the end potentially resulting in the divergent application of the same concept.
2. The (non-)role of OECD documents in the reasoning of the CJEU
As mentioned in the introduction, in État luxembourgeois v L, the Court mentioned only in passing that the concept of ‘foreseeable relevance’ in the DAC found its origin in that Model Tax Convention. One could interpret this rather redundant remark as the historic interpretation of the EU’s concept of ‘foreseeable relevance’, but if that were the case, the CJEU could have been more specific on the use of historic arguments and the relevance of the origin of the concept like it did in Pringle and Wightman.
However, in my opinion, the OECD documents should also have been relevant for the contextual interpretation of EU concepts that can be found in comparable OECD sources. And with this point, we get to the core of interpretational issues at the EU level. As said before, the EU is a supranational body with its own legal order. I can fully understand that the EU does not want to be dependent on concepts and interpretations by other international bodies such as the OECD with its Model Tax Convention, Commentaries and BEPS reports, and, now, Pillar 1 and Pillar 2. Those documents should, however, be granted more relevance for interpretational issues. Especially in the field of the allocation of taxing rights, most EU Member States have a lot of experience with the OECD Model Tax Convention, its concepts, and its interpretations. All those documents come into existence after thorough international debates and discussions and in the end, to a large extent, constitute consensus among the OECD member countries. The EU institutions should attach more value to those developments and documents for interpretational issues, more than only serving as confirmation for the CJEU’s interpretation solely based on EU original texts and contextual arguments.
In addition, the EU’s preferred way of harmonization in the field of direct taxation – i.e. through a directive – also would support granting more interpretational relevance to OECD documents. The core function of a directive, after all, is to harmonize domestic laws to achieve a certain result, but in such a way that the individual member states are allowed to choose the form they prefer. This automatically has the effect that the wording of domestic laws might differ, leading to increased importance of interpretation of the law and the underlying directive. In that interpretational process, OECD interpretations on tax matters are getting more relevant, especially when the preamble to those directives directly refers to the OECD documents forming the origins of those directives.
Staying within DAC, the interpretational relevance of OECD documents is growing. The already mentioned DAC6, on the exchange of information on cross-border reportable arrangements by intermediaries, is to a certain extent based on BEPS Action 12 – as is explicitly mentioned in the preamble to DAC6. However, even if EU Member States had more or less copied the text of the definitions or hallmarks used in DAC6 into their domestic laws, there would still remain several interpretational differences among the Member States. Partially, that is caused by different terminology used by both the OECD and the EU, but also partially because several EU Member States interpreted DAC6 concepts differently by using different sources of interpretation. A classic example of this is the use of the term ‘payment’ in DAC6 hallmark C1. The EU does not give guidance on how this term is to be interpreted. Consequently, some Member States interpret the term as including ‘deemed payments’ but some do no. However, in its BEPS Action Plan 12, the OECD indicated that deemed payments should suffice for the term ‘payment’.
A comparable analysis can be made for the introduction of the amendment to the Anti-Tax Avoidance Directive regarding the notion of hybrid mismatches, which found its origin in OECD BEPS Action 2. As the wording of ATAD2 is not one-on-one identical to the OECD’s suggestions, new interpretational issues arise to what extent the international consensus on the avoidance of hybrid mismatches is relevant for the interpretation of concepts in ATAD2. This is, for instance, caused by the fact that the text of ATAD2’s provisions only relates to a certain part of the OECD BEPS Action Plan, where the preamble to ATAD2 indicates a more general reference to the entire OECD BEPS Action Plan, causing interpretational unclarity as well. Subsequently, if we take the current developments at a global scale into account, especially Pillars 1 and 2, new discussions to this end will arise; And those developments probably will not be the last ones.
3. Concluding remarks
Consequently, one could – or should – ask why the EU always wants to re-invent the wheel. Why include its own definitions in secondary EU law, while a definition already exists at OECD level? Or, even worse, why sometimes explicitly give a different interpretation to an OECD concept? Especially since for most developments in the field of direct taxation nowadays the order of sequence is that global consensus is reached at OECD level, followed by a transposition into EU law – and most EU member states are OECD members as well – a closer textual connection to major OECD concepts would have my preference, especially from an interpretative perspective. Most of the time, the preamble of the directive even directly refers to the OECD document that was the reason for the creation of the directive. A lager interpretative connection between an EU directive and OECD documents would provide taxpayers with more clarity as well, as comparable concepts are explained comparably. That does not automatically mean that OECD texts should be copied into any Directive, but where definitions are concerned that should certainly be considered. Moreover, a more direct reference to OECD positions for interpretational issues should be considered by both the European Commission when making legislative proposals and the CJEU.
Posted by Dr Jasper Korving (Maastricht)
Suggested citation: J Korving, “The influence of the OECD in the creation of binding legislation on Exchange of information within the EU: why is the EU always re-inventing the wheel?”, REALaw.blog, available at https://realaw.blog/?p=1009.