The directive, which was proposed by the European Commission (EC), is aimed at improving transparency on tax rulings given by member states to companies about how their taxes are calculated.
Under the new directive, member states will be required to automatically exchange information on advance cross-border tax rulings as well as advance pricing arrangements. This means any so-called sweetheart deals that member states have agreed to with multinationals will be revealed.
The directive enables member states to monitor other member states’ issuance of advance tax rulings or transfer pricing arrangements and assess the possible impact of these on their own tax revenue.
Where necessary, member states receiving information will be able to request additional information.
The exchanged information will be stored in a newly developed secure central directory, which will be accessible to all member states and, to the extent that is its required for monitoring the correct implementation of the directive, the EC as well.
"This is a decisive step towards greater transparency in tax matters," said Pierre Gramegna, minister of finance of Luxembourg and president of the council.
"The presidency managed to obtain this agreement in record time. Europe is sending a strong signal for greater equity in taxation of businesses worldwide."
A number of companies have come under fire by the EC for their tax arrangements with many shifting taxable profits towards states with more advantageous tax regimes or eroding the tax base.
It was revealed this week that the owner of Cadbury’s paid no UK corporation tax last year, while Facebook was also criticised for paying only £4,327.
In October, the EC ruled that selective tax advantages for Fiat Chrysler in Luxembourg and Starbucks in the Netherlands are illegal under EU state aid rules.
The EC is also investigating Luxembourg’s treatment of McDonald’s and has ongoing investigations into the tax rulings of Apple in Ireland, Amazon in Luxembourg and Belgium’s “excess profit” ruling system.
The new transparency rules will come into effect on 1 January 2017 and until then the present rules will remain in place.