The reporting mechanism will contribute to more tax justice and fair competition in the EU
The European Commission must set out more precise hallmarks for the proposed reporting obligations on cross-border tax arrangements and transactions in order to prevent subjective interpretation by taxpayers and tax authorities which could lead to over-reporting and administrative burdens, the European Economic and Social Committee (EESC) urges in its recently adopted opinion on disincentives to tax avoidance or evasion.
The Commission's new directive on administrative cooperation amongst Member States in the field of taxation puts forward an obligation for intermediaries – entities, companies or professionals which give advice to taxpayers on tax planning – and in some cases taxpayers themselves to report tax schemes that fall within four standard types of reportable activities to their respective tax authorities.
The reported information will be automatically exchanged between Member States. The overall aim of the mandatory automatic exchange of information on reportable cross-border arrangements is creating a deterrent to aggressive tax planning.
The scope of the proposed hallmarks is too broad, says Victor Alistar (Various Interests Group, Romania), rapporteur for the EESC opinion. He adds that
we must avoid subjective interpretation by taxpayers and tax authorities on whether transactions fall within a hallmark or not. The Commission and the Member States must provide appropriate and constructive guidance in this regard.
There is a need for further guidance
In order to prevent over-reporting and administrative burdens, the EESC asks the Commission to revise the four standard types of indicator for identifying reportable activities set out in the annex to the directive.
When revising the criteria for reporting, the Commission must strike a balance between legal certainty and flexibility to ensure the effectiveness of the deterrent and the feasibility of the reporting obligation, emphasises Mr Alistar.
The Commission must elaborate further on how the directive applies to the digital economy and clarify the proposed criteria for ensuring a uniform approach across national legislations to the prosecution of failures to report, says the EESC.
EESC recommendations to ensure the proportionality and feasibility of the proposed directive
The EESC also recommends a more comprehensive impact assessment and a revision of the proposed timeframe for evaluating the implementation of the directive. It asks for a two-yearly public report and to ensure that administrative costs for all sizes of business remain as low as possible. The measures should not inhibit the ease of doing business and making direct foreign investments, urges the Committee.
Some companies are shifting some of their profits made in Member States with higher tax rates to others with lower tax rates. This practice is often enabled by intermediaries and leads to a reduction of Member States' tax bases and serious distortions on the internal market.
The EESC believes that the Commission's proposals draw particular attention to the crucial role of intermediaries and aim to increase the transparency of their activities.
The reporting obligation will deter intermediaries from offering aggressive tax planning schemes. It will create a level playing field for taxpayers and tax justice between taxpayers. The mechanism will contribute to fair competition on the Single Market and stable tax revenues for Member States, says Petru Sorin Dandea (Workers' Group, Romania), co-rapporteur for the opinion.
The EESC also welcomes the Commission's proposal to provide logistical and technical support for the implementation of the respective tools in the Member States. It recommends providing further support to train the staff in charge of recording and exchanging the information concerned.
In the light of the increasing mobility of capital and recent disclosures of tax avoidance and aggressive tax planning schemes via Lux Leaks, the Panama Papers and the Paradise Papers, the Commission has placed the fight against tax avoidance and aggressive tax planning among its top priorities. Its latest proposal for a Council Directive corresponds to Action 12 of the OECD's BEPS project, which recommends deterring the activities of intermediaries that advise companies on aggressive tax planning.
The proposal contains a list of hallmarks that could potentially indicate aggressive tax planning. The proposed mandatory reporting scheme will open up a dialogue between taxpayers and tax authorities and does not imply an automatic presumption of aggressive tax planning.
Related EESC opinions and referrals:
- Common (Consolidated) Corporate Tax Base – Michael McLoughlin (Various Interests' Group-IE)
- 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)
- 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)