The European Commission has just published its proposals for rules for tax advisers and related intermediaries which will require advance disclosure to national tax authorities and cross-border automatic information exchange of any tax scheme that might be deemed potentially aggressive. This is a welcome step, albeit one that still leaves the public in the dark about corporate tax avoidance since the disclosures won’t be publicly available (as our colleagues at Eurodad rightly note). You can download the proposed European Commission Directive here.
Professor Richard Murphy of City University has described the rules as “a vital step in the right direction”, adding in an interview with International Tax Review that:
“Without lawyers and accountants, most schemes would not exist . . . It’s better to attack the supplier than go after the user”
In the same article TJN’s John Christensen comments that the rules targeting tax avoidance enablers might contribute to an important cultural change among tax professionals, too many of whom seem to operate in an ethical void:
“Too many tax advisers are prone to leave their moral and ethical values at home when they head to work, reckoning that the abusive schemes they concoct will never be investigated. These proposals have the potential for radically transforming this culture.”
In the accompanying press release (which we have pasted in full below) EC Commissioner Pierre Moscovici claims that these proposals will make life “very difficult” for financial enablers who don’t respect the spirit and letter of tax laws
“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. Our work for fairer taxation throughout Europe continues to advance.”
In this same International Tax Review article, London-based tax barrister David Quentin said that disclosure rules already in place in the U.K., are thought to be effective in tackling the widely marketed “off-the-shelf” schemes, but are less effective against more bespoke schemes concocted for larger multinational companies.
The U.K. experience, where HM Revenue & Customs has been overwhelmed by disclosures, suggests that additional capacity will be needed to handle the volume of tax disclosures.
Here is the European Commission press release:
Commission forges ahead on new transparency rules for tax planning intermediaries
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, responsible for the Euro and Social Dialogue, Financial Stability, Financial Services and Capital Markets Union 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:“We are continuing to ramp up our tax transparency agenda. 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. Our work for fairer taxation throughout Europe continues to advance.”
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.
The obligation to report a cross-border scheme bearing one or more of these hallmarks will be borne by:
- the intermediary who supplied the cross-border scheme for implementation and use by a company or an individual;
- the individual or company receiving the advice, when the intermediary providing the cross-border scheme is not based in the EU, or where the intermediary is bound by professional privilege or secrecy rules;
- the individual or company implementing the cross-border scheme when it is developed by in-house tax consultants or lawyers.
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. 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 new rules are comprehensive, covering all intermediaries, all potentially harmful schemes and all Member States. 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.