The European Commission has today proposed tough new transparency rules for intermediaries – such as tax advisors, accountants, banks and lawyers – who design and promote tax planning schemes for their clients.
Recent media leaks such as the Panama Papers have exposed how some intermediaries actively assist companies and individuals to escape taxation, usually through complex cross-border schemes. Today's proposal aims to tackle such aggressive tax planning by increasing scrutiny around the previously-unseen activities of tax planners and advisers.
European Commission Vice-President Valdis Dombrovskis said: "The EU has become the frontrunner when it comes to bringing more transparency to the world of aggressive tax planning. This work is already reaping results. Today we are proposing to hold responsible the go-betweens who create and sell tax avoidance schemes. Ultimately, this will result in greater tax revenues for member states."
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “Today, we are setting our sights on the professionals who promote tax abuse. Tax administrations should have the information they need to thwart aggressive tax planning schemes. Our proposal will provide more certainty for those intermediaries who respect the spirit and the letter of our laws and make life very difficult for those that do not."
Cross-border tax planning schemes bearing certain characteristics or 'hallmarks' which can result in losses for governments will now have to be automatically reported to the tax authorities before they are used. The Commission has identified key hallmarks, including the use of losses to reduce tax liability, the use of special beneficial tax regimes, or arrangements through countries that do not meet international good governance standards.
Our proposal will provide more certainty for those intermediaries who respect the spirit and the letter of our laws and make life very difficult for those that do not.
Member states will automatically exchange the information that they receive on the tax planning schemes through a centralised database, giving them early warning on new risks of avoidance and enabling them to take measures to block harmful arrangements.
Details of every tax scheme containing one or more hallmarks will have to be reported to the intermediary's home tax authority within five days of providing such an arrangement to a client.
The requirement to report a scheme does not necessarily imply that it is harmful, only that it merits scrutiny by the tax authorities. However, member states will be obliged to implement effective and dissuasive penalties for those companies that do not comply with the transparency measures, creating a powerful new deterrent for those that encourage or facilitate tax abuse.
The requirement to report a scheme does not necessarily imply that it is harmful, only that it merits scrutiny by the tax authorities.
The proposal will be submitted to the European Parliament for consultation and to the Council for adoption. It is foreseen that the new reporting requirements would enter into force on January 1, 2019, with EU member states obliged to exchange information every three months after that.
New EU rules to block artificial tax arrangements, as well as new transparency requirements for financial accounts, tax rulings and multinationals' activities have already been agreed and are progressively entering into force. Proposals for stronger Anti-Money Laundering legislation, public Country-by-Country reporting requirements and tougher good governance rules for EU funds are currently being negotiated. In addition, a new EU list of non-cooperative tax jurisdictions should be ready before the end of the year.
Watch: Understanding the new proposal