The dividing line between tax evasion and tax avoidance has always been blurred. While most countries defend their fiscal sovereignty that enables them to determine their fiscal policies, the issue of personal and corporate tax avoidance is very high on the political agenda of many countries. The need for action to combat it features frequently on the agenda of, among others, G20, G8 and OECD meetings.

The European Commission is proposing that aggressive tax planning schemes by intermediaries who help reduce clients’ burdens and conceal money offshore must be reported to the tax authorities of member states.

International media leaks, including the Panama Papers, on how the rich and famous often find ways of hiding their wealth from the taxman have increased the focus on curbing tax avoidance that is sometimes encouraged through the services of intermediaries. Aggressive tax planning is defined as “actively pushing the limits of what is allowed in terms of the law. This may be stretching the definition of a term in legislation to access a loophole or dressing up an arrangement so that it appears to be something else”. Normal tax planning makes use of accepted practices to reduce tax.

While the most damaging practices are normally perpetrated by multinationals, increasing importance is being given to wealthy persons, especially those who are politically exposed, who employ intermediaries to spirit away their wealth in offshore jurisdictions where regulatory scrutiny and good governance ethics are often overlooked.

It seems most unlikely that EU member states will ever agree to give up their fiscal sovereignty to ensure that all corporate businesses, as well as individuals, operate on a level playing field. So far, progress in tax harmonisation has been slow with countries like the UK, Ireland, Malta and Luxembourg defending their fiscal rights vociferously.

EU political leaders are trying to curb tax avoidance by increasing disclosure regulations on those who resort to aggressive tax planning. The political justification for these tactics is convincing. Aggressive tax planning not only deprives the majority of member states from much-needed public income but the practice is also immoral.

While employees pay taxes and social security contributions, which can amount to a considerable proportion of their salary, multinational corporations  and wealthy individuals transfer profits to tax havens to avoid taxes entirely.

When political consensus may be difficult to achieve because of the conflicting national priorities, changes in reporting and accounting standards practices by international regulatory bodies could well bolster the deterrent effect on those that participate in tax avoidance schemes.

European Greens spokesman MEP Sven Giegold appealed to member states to scale up their resources in their tax administrations to track down tax evaders. It will take several more months, if not years, to have the proper checks to curb aggressive tax planning throughout the EU. However, the erosion of the EU’s social pillar through tax avoidance will ensure that focus on this issue will become more intense.

Counties like Malta, Luxembourg and Ireland will do well to justify their strong defence of fiscal sovereignty by showing unwavering political will to curb abuse by corporations and wealthy individuals. Growing popular anger against tax avoiders can only increase.