EESC reinforces debate on disincentives to tax avoidance and evasion with organised civil society and relevant stakeholders
Individuals, financial service providers (intermediaries) and corporate in-house services tend to use legal grey zones or loopholes worldwide to avoid or evade tax. The Panama and, most recently, Paradise Papers have shown once again that most of the current tax planning schemes are legal. How can these loopholes be closed? The EESC recently hosted a technical hearing with experts from prominent organisations to discuss possible disincentives to tax avoidance or evasion.
The hearing was organised in connection with the preparation of an EESC opinion on disincentives to tax avoidance or evasion, referring to the Commission proposal for a Council Directive to amend current EU regulation on administrative cooperation in the field of taxation.
The proposal contains a list of hallmarks that could potentially indicate aggressive tax planning. Taxpayers, intermediaries and companies would be obliged to report cross-border arrangements to the tax authorities approving these hallmarks. The mandatory reporting scheme will open up a dialogue between taxpayers and tax authorities but does not automatically mean that there is a presumption of aggressive tax planning. Non-reporting would be prosecuted and each Member State would be required to set up systems of sanctions.
In addition, the Commission proposes a mandatory automatic exchange of the reported tax information amongst Member States. The exchange would be backed by logistical and technical support at EU level. The EESC rapporteurs of the opinion in question, Victor Alistar (Various Interests' Group) and Petru Sorin Dandea (Workers' Group), endorsed the Commission proposal during the hearing. The current legal provisions did not enable Member States to exchange information on reportable cross-border arrangements, in their view.
The rapporteurs welcomed the Commission's aim to achieve tax fairness between taxpayers and its decision to tackle the problem of intermediaries promoting aggressive tax planning. They believed that this could help reduce the harmful erosion of Member States' tax bases.
Because of the diversity of EU tax systems, experts from the CEPS, EPRS, OECD and Tax Justice Network endorsed the Commission's proposal for a directive in general terms. It would ensure that measures were implemented uniformly across the Member States. The experts pointed to the need to provide a precise definition of hallmarks wherever possible, striking a balance between legal certainty and flexibility, so as to guarantee the effectiveness of the disclosure rules. They also asked the EESC to do more to promote the introduction of disincentives to tax avoidance or evasion, including beyond European borders.
Paul Hondius, policy analyst of the OECD's Centre for Tax Policy and Administration, observed that recent media leaks, activities at the level of tax administrations, and the results of the OECD's Common Reporting Standard disclosure initiative showed that we needed more transparency on offshore structures and schemes that try to get around tax reporting. He said, "The logical focus is therefore on targeted rules applicable to the intermediaries that come up with these schemes. That is why the G7 has tasked us with exploring such rules building on the OECD BEPS action plan, and we will present them shortly".
"The Commission must examine carefully whether and how companies can comply with the proposed rules, and must clearly define who would be responsible to report the arrangement", noted Monique van Herksen, independent tax controversy counsel and member of the UN Subcommittee on Transfer Pricing. She asked the European Commission to make sure that the Directive complied with the proportionality principle and to avert the risk of double taxation, including additional provisions if and where necessary.
"Modification of hallmarks only on the basis of disclosed information might be rather narrow. The Commission may receive information from other sources which could be relevant. The specific provision on modification must be reviewed", said Sol Picciotto, Head of the BEPS Monitoring Group at the Tax Justice Network.
The EESC is closely following ongoing debates on aggressive tax planning held by the Council of the EU and by civil society at large. In January 2018, the Committee will issue specific remarks on the Commission proposal for a Council Directive and debate the above-mentioned opinion at the EESC Plenary.
Related EESC opinions and referrals:
- Taxation of the collaborative economy - Giuseppe GUERINI (Various Interests' Group-IT), Krister ANDERSSON (Employers' Group-Sweden)
- Tax system for competition/growth – Petru Sorin DANDEA (Workers' Group-RO)
- Common (Consolidated) Corporate Tax Base – Michael McLoughlin (Various Interests' Group-IE)
- Anti-tax avoidance practices regarding hybrid mismatches
- Anti-Money Laundering Directive – Javier DOZ ORRIT (Workers' Group-ES)
- Access to anti-money-laundering information by tax authorities - Petru Sorin DANDEA (Workers' Group-RO)
- Public tax transparency (country-by-country reporting) - Victor ALISTAR (Various Interests' Group), Petru Sorin DANDEA (Workers' Group)
- Anti-tax-avoidance package - Petru Sorin DANDEA (Workers' Group-RO), Roger BARKER (Employers' Group-UK)