Analysing Loopholes in the EU’s Automatic Exchange of Information and How to Close Them

Abstract

The European Union (EU) has been making improvements to its legal frameworks relating to the collection and exchange of relevant information to help tackle illicit financial flows related to tax evasion and tax avoidance and in order to identify money associated with crime. Given the existence of flaws in the first version of the Directive on Administrative Cooperation (DAC 1), the EU has been working on amendments to the Directive in order to broaden its scope, increase the number of cases that trigger the need for the collection and exchange of information and improve the mechanisms and timeframe for those exchanges. This paper will focus on two transparency initiatives implemented at the EU level against the backdrop of the global state of play. The first one refers to the automatic exchange of financial account information pursuant to the first revision of the Directive on Administrative Cooperation (DAC 2), which relates to tax evasion (and could equally be used to tackle money laundering and corruption). The second one refers to the automatic exchange of crossborder rulings and advance price agreements (APAs) pursuant to the second revision of the Directive on Administrative Cooperation (DAC 3), which relates to tax avoidance by multinational entities. The paper will describe both frameworks, their origins and their differences by comparison with other global standards. It will also identify loopholes, shortcomings or risks and propose fixes to solve them.