Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Andorra

Andorra has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review), except for identifying potential exchange jurisdictions for past rulings (ToR I.4.2.2) and for future rulings (ToR I.4.2.1) and for undertaking spontaneous exchange of information on tax rulings (ToR II.5). Andorra is recommended to continue to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings and to ensure that all potential exchange jurisdictions are identified swiftly for all future rulings. Andorra has introduced the necessary legal basis for spontaneous exchange of information on rulings, which took effect from 10 June 2017. However, Andorra did not undertake spontaneous exchange of information on tax rulings within scope of the transparency framework during the year in review. Andorra is recommended to complete the templates for all relevant rulings and to ensure that the exchanges of information on rulings occur as soon as possible.

Andorra can legally issue five types of rulings within the scope of the transparency framework.

In practice, Andorra issued 177 past rulings; and for the year in review, Andorra issued 44 future rulings within the scope of the transparency framework.

As no exchange of information on rulings was conducted, no peer input was received in respect of the exchanges of information on rulings received from Andorra.

Introduction

1.  This peer review covers Andorra’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

2.  Andorra can legally issue the five following type of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes;1 (ii) cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; (iii) unilateral downward adjustments; (iv) permanent establishment rulings; and (v) conduit rulings. These rulings are referred to as written tax inquiries, special agreements, preferential regime rulings or previous valuation agreements. The Andorran Tax Administration (“ATA”) is responsible for issuing rulings through a centralised office. Rulings issued under the form of written inquiries (binding consultations) are published online in anonymised form.2 Rulings under the form of special agreements are published in the Andorran official gazette. Previous valuation agreements are not published.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

3.  For Andorra, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2015 but before 1 April 2017; or (ii) on or after 1 January 2012 but before 1 January 2015, provided they were still in effect as at 1 January 2015.

4.  The process for identifying past rulings was conducted as follows. Rulings were maintained in a database and a review for past rulings was performed. The specific files were reviewed for the cases in which the rulings were not saved in the database. The Andorran Tax Administration has been in charge of the research, identification and review of the existing past rulings, with support of staff within the international financial matters division.

5.  Andorra had difficulties to identify potential exchange jurisdictions, as this information was not required as part of the process for issuing past rulings. Andorra used internal information contained in the ruling request itself, in the company organisation chart or in the different contracts eventually annexed to the request. Andorra was not able to obtain information on potential exchange jurisdictions. Andorra is recommended to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings. Andorra notes that it is currently working on the information gathering process and identifying the potential exchange jurisdictions.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

6.  For Andorra, future rulings are any tax rulings within scope that are issued on or after 1 April 2017.

7.  As was the case for past rulings issued since 2015, rulings are maintained in a database and identified by manual verification by the respective division, which checks all rulings as soon as they are issued against the obligations for spontaneous exchange. A brief review is also done on an annual basis to detect any eventual remaining cases to be issued.

8.  In order to identify all potential exchange jurisdictions, the ruling application process will be amended and the taxpayer will be required to identify all relevant jurisdictions when requesting the ruling, including the immediate parent company and ultimate parent company. Andorra is planning to introduce these amendments by the end of 2018. However, during the year in review, this information was not requested in the ruling process and as such Andorra has not yet started the process to capture the relevant information. In the meantime, Andorra is applying the “best efforts approach” to identify potential exchange jurisdictions for future rulings.

Review and supervision mechanism (ToR I.4.3)

9.  Andorra centralised the procedure to collect information with regard to the tax rulings that are in the scope of the transparency framework, appointing the Director of the Tax Administration as having responsibility, with support of staff in the international financial matters division. The EOI division also performs a quality control check in relation to each ruling identified as subject to exchange. This includes checking that the ruling is categorised correctly and that all relevant information has been provided.

Conclusion on section A

10.  Andorra has met all of the ToR for the information gathering process except for identifying all potential exchange jurisdictions for past rulings (ToR I.4.2.2) and for future rulings (ToR I.4.2.1). Andorra is recommended to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings and to ensure that all potential exchange jurisdictions are identified swiftly for all future rulings.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

11.  Andorra did not previously have the necessary domestic legal basis to exchange information spontaneously for rulings. The Andorran domestic Law that enables spontaneous exchange of information has been introduced and entered into force on 10 June 2017. However, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”) allows Andorra to exchange information on rulings issued as of 1 January 2012, provided they were still in effect on 1 January 2017 (after the date of entry into effect of the Convention)3. Andorra explained that this limitation of the possibility to exchange information on past rulings was necessary, as Andorra’s legal framework does not foresee the possibility of introducing legislation with retrospective effect. Due to this limitation, only information concerning periods after the entry into force of the legal basis on spontaneous exchange of information can be exchanged, regardless of the date on which the ruling was issued.4

12.  Andorra notes that apart from the restriction to exchange information on past rulings there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard after the date of entry into effect of the Convention.

13.  Andorra is a party to international agreements permitting spontaneous exchange of information, including (i) the Convention and (ii) double tax agreements in force with 28 jurisdictions.5

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

14.  Andorra noted that it will exchange future rulings as soon as all the potential exchange jurisdictions of the rulings issued are identified.

15.  With respect to future rulings, Andorra will educate its tax officers to ensure that rulings are submitted to the Competent Authority for exchange of information within three months of the ruling being issued. The EOI unit will also ensure that the necessary administrative and practical measures (such as IT, process descriptions, professional training, etc.) are taken by the Tax Administration, in order to ensure that spontaneous exchange of information is implemented effectively.

16.  As there were no exchanges for the year in review, no data on the timeliness of exchanges can be reported.

Conclusion on section B

17.  Andorra has introduced the necessary legal basis for spontaneous exchange of information on rulings, which took effect from 10 June 2017. However, the Convention allows Andorra to exchange information on rulings issued as of 1 January 2012, provided they were still in effect on 1 January 2017 (after the date of entry into effect of the Convention). Andorra did not undertake spontaneous exchange of information on tax rulings within scope of the transparency framework during the year in review. Andorra is recommended to complete the templates for all relevant rulings and to ensure that the exchanges of information on rulings occur as soon as possible.

C. Statistics (ToR IV)

18.  As there were no exchanges for the year in review, no statistics data can be reported.

D. Matters related to intellectual property regimes (ToR I.4.1.3)

19.  Andorra offers an intellectual property regime (“IP regime”).6 However, for the year in review no transparency requirements under the Action 5 Report (OECD, 2015) were relevant, as follows:

• New entrants benefitting from the grandfathered IP regime: not applicable for the year in review, because Andorra was in the process of amending the regime (draft legislation under parliament procedure) and had not taken a decision yet on whether it will provide grandfathering to existing taxpayers. Should Andorra provide grandfathering to taxpayers for which IP income benefits and that entered the regimes after the publication of the 2017 Progress Report (OECD, 2017b) which occurred on 16 October 2017, transparency requirements will apply and this will be taken into account during the 2018 peer review.

• Third category of IP assets: not applicable to this regime, which in 2017 was in the process of being amended.

• Taxpayers making the use of the option to treat the nexus ratio as a rebuttable presumption: not applicable to this regime, which in 2017 was in the process of being amended.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
Andorra experienced difficulties in identifying all potential exchange jurisdictions for past rulings.	Andorra is recommended to continue to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings.
Andorra experienced difficulties in identifying all potential exchange jurisdictions for future rulings.	Andorra is recommended to ensure that all potential exchange jurisdictions are identified swiftly for all future rulings.
Andorra did not undertake spontaneous exchange of information on tax rulings within scope of the transparency framework during the year in review.	Andorra is recommended to continue its efforts to complete the templates for all relevant rulings and to ensure that the exchanges of information on rulings occur as soon as possible.

References

OECD (2017a), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2017b), Harmful Tax Practices - 2017 Progress Report on Preferential Regimes: Inclusive Framework on BEPS: Action 5, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264283954-en.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  These are: 1) Holding company regime, 2) Intercompany and financing regime, 3) Companies involved in international trade and 4) Companies involved in the international exploitation of intangible assets regime. The rulings related to these preferential regimes are not published.

← 2.  These rulings are published at www.impostos.ad/comunicats-tecnics-i-consultes-vinculants. Rulings (issued by means of articles 65, 66 and 67 of the Andorran Law on General Taxation - Written inquiries, Previous valuation agreements and Special agreements) can be included in more than one of the transparency framework categories according to the specific demand the taxpayer has requested.

← 3.  Andorra is a signatory to the Convention, which is in effect as of 1 January 2017 and permits Andorra to spontaneously exchange information from 1 January 2017.

← 4.  The Action 5 Report (OECD, 2015) notes that jurisdictions which do not currently have the necessary legal framework in place for spontaneous exchange of information on rulings will need to put in place such a framework in order to comply with the obligations under the transparency framework, but that in such cases the timelines are subject to a country's legal framework.

← 5.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tx-matters.htm. Andorra also has bilateral agreements in force with Argentina, Australia, Austria, Belgium, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany, Greenland, Iceland, Italy, Korea, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, Norway, Poland, Portugal, San Marino, Spain, Sweden, Switzerland and United Arab Emirates.

← 6.  This regime is the Companies involved in the international exploitation of intangible assets regime, to be amended by Law 6/2018.