Best Practices in Tax Rulings Transparency

Abstract

Tax rulings reflect agreement by a tax administration to a particular tax treatment of a planned transaction. They provide certainty to taxpayers and the government, lowering costs on both sides. Such rulings are therefore used by many countries. Yet, secrecy that is followed by leaks and criticism is a recurring aspect of these rulings. Perhaps most well known in this regard is the 2014 LuxLeaks scandal. LuxLeaks revealed numerous tax rulings issued by the European country of Luxembourg containing what the press sometimes termed “sweetheart deals” between the Luxembourg tax authority and multinational companies. The United States has also experienced embarrassing revelations in the tax rulings context, such as during the period before it began disclosing anonymized versions of letter rulings. LuxLeaks helped trigger legal changes that require tax authorities, including those of European countries and the United States (U.S.), to automatically share information about cross-border advance rulings with other countries’ tax authorities. But Luxembourg’s tax rulings otherwise remain confidential. The U.S. is in a similar position with respect to a type of tax ruling, the Advance Pricing Agreement (APAs): it exchanges information about APAs with other countries but otherwise does not disclose them. Tax rulings provide important legal consequences for affected taxpayers. Lack of rulings transparency has a variety of costs. This Article (1) develops an original typology of the costs, (2) catalogues the levels of possible disclosure, connecting each level with the risks it would address; and (3) examines the possible downsides of tax ruling transparency. The Article concludes that, despite government resistance, best practices call for public disclosure of anonymized tax rulings—both letter rulings and APAs—heavily redacted, if necessary.