It is a complicated and illegitimate venture to avoid taxes legally. Hence, companies and individuals are dependent on the support of experts. So far, these law firms, banks or auditing firms are not subject to common rules. The Commission’s proposal is to change this.
On 28 and 29 June, the Tax Fairness Conference organised by the European Commission took place in Brussels. The Juncker Commission is committed to the fight against tax avoidance and tax evasion. So far, a total of 15 different initiatives has been pursued, seven of which have already been signed and will soon enter into force. The others, such as the proposal for (public) country by country reporting, or the common consolidated corporate tax base, are still under negotiation.
The latest proposal by the Commission refers to significant findings by the PANA Committee of Inquiry. About 14,000 financial intermediaries, hence experts from law firms, auditing firms, trust companies, banks and of course tax consultancies, were involved in transactions related to the Panama Papers – about a fifth of them are registered in the EU. They play a fundamental role in creating offshore structures: without them, it would be impossible to avoid taxes on such a massive scale. However, so far no cross sectoral regulations, which do not solely aim at the job title, but on the actual activity, exist.
The current Commission proposal does address this very issue. According to the proposal, financial intermediaries shall be obliged to notify tax authorities of cross-border instruments, which might contribute to tax avoidance, within five days after disposition. This information is to be automatically shared between all Member States. However, notified structures do not have necessarily to be inadmissible. The objective is to verify them based on certain key characteristics, such as favourable special tax regulations or a closer look at the countries and the countries' institutional structures involved. Any instruments, which are not notified, shall involve high sanctions.
The Commission hopes that the related transparency will put an end to tax avoidance structures as quickly as possible, before vast amounts of money will drain the public purse. However, once again, only tax authorities will benefit from more insights; the public, the EU-citizens are not to be involved – a shortcoming, which has already been brought to bear in the already negotiated Regner-Bayet proposal on country by country reporting. So far, the Commission proposal does not include genuine transparency or publicly accessible data, which would be able to exert public pressure. However, further negotiations may still be able to improve the proposal accordingly.