By Davide Anghileri, University of Lausanne
The EU Parliament, adopted by 505 votes in favour, 63 against, and 87 abstentions, a report on financial crimes, tax evasion, and tax avoidance during its plenary session on 26 March. The report takes controversial positions, including calling out seven member states for their role in facilitating aggressive tax planning and recommending countermeasures against the US should it fail to provide Foreign Account Tax Compliance Act (FATCA) reciprocity.
The recommendations were prepared over a year by Parliament’s special committee on financial crimes, tax evasion and tax avoidance (TAX3). The recommendations range from overhauling the system to deal with financial crimes, tax evasion and tax avoidance, notably by improving cooperation in all areas between the multitude of authorities involved, to setting up new bodies at EU and global level.
The EU Parliament decided to establish TAX3, on 1 March 2018, due to continued revelations over the last five years like LuxLeaks, the Panama Papers, Football leaks, and the Paradise papers; therefore it created a special committee to examine the situation a to find solutions and propositions.
Urgent need for reform
The adopted report stresses the need for urgent tax reform. The committee noted that existing tax rules are often unable to keep up with the increasing speed of the economy. Hence, it is essential to adopt the EU initiatives that have not yet been finalised and for careful monitoring of the implementation to ensure efficiency and proper enforcement, to keep pace with the versatility of tax fraud, tax evasion, and aggressive tax planning.
In this regard, the report points out that there is a lack of political will in member states to tackle tax evasion/avoidance and financial crime and criticises Denmark, Finland, Ireland, and Sweden for maintaining their opposition to the digital services tax.
Moreover, the report recalls the importance of a common EU list of non-cooperative jurisdictions for tax purposes based on comprehensive, transparent, robust, objectively verifiable and commonly accepted criteria that are regularly updated (a review of the EU list is expected in the first quarter of 2019).
However, at the same time, the report states that the Commission has criticised seven Member States – Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta, and the Netherlands – for shortcomings in their tax systems that facilitate aggressive tax planning, arguing that they undermine the integrity of the European single market. Thus, these jurisdictions can also be regarded as facilitating aggressive tax planning globally.
However, at the same time, the report states that the Commission has criticised seven Member States – Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta, and the Netherlands – for shortcomings in their tax systems that facilitate aggressive tax planning, arguing that they undermine the integrity of the European single market. Thus, these jurisdictions can also be regarded as facilitating aggressive tax planning globally.
As an example, the report reports that the Netherlands, by facilitating aggressive tax planning, deprives other EU member states of € 11.2 billion of tax revenue.
The report recommends the undertaking of effective and dissuasive countermeasures against non-cooperative jurisdictions at the EU level and not at the National level. These countermeasures should also be envisaged against the US if it does not ensure FATCA reciprocity.
Furthermore, the report signifies the need to give a clear definition of letterbox companies to identify the actual owners and consequently disclose them to tax authorities.
Other findings and recommendations regard the necessity to set up an EU anti-money laundering watchdog, to counteract the cum-ex fraud scheme through multilateral, and not bilateral, tax treaties, to create of an European financial police force and an EU financial intelligence unit, to harmonise VAT rules at EU level, to gradually eliminate golden visas and passports.
UN role in international tax standard setting
The report also suggests the creation of an intergovernmental tax body within the framework of the UN, which should be well equipped and have sufficient resources and, where appropriate, enforcement powers, would ensure that all countries can participate on an equal footing in the formulation and reform of a global tax agenda to fight harmful tax practices effectively and ensure an appropriate allocation of taxing rights.
Finally, the report affirms that whistle-blowers and investigative journalists must be much better protected and that an EU fund to help investigative journalists should be set up.
During the press conference, the chair of the special TAX3 committee, Petr Ježek (ALDE, CZ), said that “Member states are not doing enough and, in the EU, the Council is clearly the weakest link. Without political will, there can be no progress. Europeans deserve better.”
Co-rapporteur, Luděk Niedermayer (EPP, CZ), stressed the necessity to address more systematically the digital economy and the economic areas that are interconnected at the EU and worldwide level.
The other co-rapporteur, Jeppe Kofod (S&D, DK), expressed the necessity to have “a minimum corporate tax rate, an end to tax competition and to make it more difficult to bring dirty money in.”
Davide Anghileri
Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.
Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues.
Davide can be reached at [email protected].
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