European Commission Proposes Strict Transparency Rules for Financial Service Providers

European Commission Proposes Strict Transparency Rules for Financial Service Providers

This week, the European Commission (EC) forged ahead with a series of rules targeting intermediaries who help their clients set up aggressive tax planning schemes.

According to the European Commission’s press release on this effort, the new rules are expected to “tackle such aggressive tax planning by increasing scrutiny around the previously-unseen activities of tax planners and advisers.”

The EC’s Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, 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." 

More specifically, these new rules will force practitioners to automatically report any cross-border scheme that “can result in losses for governments” and contain key components such as “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.”

Some of these other components involve schemes that: 1) include “a cross-border payment to a recipient resident in a no-tax country;” 2) “set up to avoid reporting income as required under EU transparency rules” or that “circumvent EU information exchange requirements for tax rulings”; 3) “have a direct correlation between the fee charged by the intermediary and what the taxpayer will save in tax avoidance,” and; 4) “ensure that the same asset benefits from depreciation rules in more than one country,” among others.

A system will be set by which European nations can “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 European Commission did clarify that a reported tax scheme is not automatically deemed harmful, “only that it merits scrutiny by the tax authorities.”

The proposal is quite wide in scope and encompasses tax advisors, accountants, banks and lawyers, among others, and “all types of direct taxes (income, corporate, capital gains, inheritance, etc.)”

Furthermore, these new rules are expected to kick in on January 1, 2019, and countries involved will have to exchange tax scheme information four times a year.

Reactions to Proposed Rules on Transparency & Aggressive Tax Planning

Reactions to Proposed Rules on Transparency & Aggressive Tax Planning

Reactions varied to this new set of rules proposed by the European Commission.

While welcoming the proposal, Chas Roy-Chowdhury, head of taxation for the Association of Chartered Certified Accountants (ACCA), expressed his concern over what could amount to an oversupply of information.

“The fear of inadvertent non-compliance and the penalties that will result may drive some tax professionals to over-disclose, just to be on the safe side,” he said.

On the other hand, Markus Ferber of the European People's Party believes the proposal will do little to combat aggressive tax planning and tax avoidance.

"The EU is just not credible as long as there are inner-European tax havens and some member states keep systematically undermining their neighbours' tax base," he said.

Furthermore, Olivier Boutellis-Taft, CEO of Accountancy Europe, believes it is not practical to have practitioners report these tax schemes.

“It would be more logical and more efficient that the taxpayer has the obligation to disclose as he may be the only one to have all the necessary information…The tax adviser has the obligation to advise, maybe including on this disclosure, but the adviser might have a hard time reporting something the client didn’t tell him,” he said.

“All players in the tax system (tax authorities, lawmakers, tax payers, intermediaries) need to take responsibility for improving it: they should work together, not against each other,” Boutellis-Taft added.

Finally, Eurodad’s tax coordinator, Tove Maria Ryding, believes this reporting should be transparent, civil society should have access to the tax schemes being reported, and more should be done to penalize intermediaries.

“If the public is left in the dark, the tax administrators will not be able to win the fight against big multinational corporations, who often have governments on their side and benefit from loopholes in the legislation,” she said.

“We’re also missing concrete proposals on the consequences for intermediaries who support large-scale tax dodging. For example, it doesn’t make sense that big accounting firms who have helped multinational corporations dodge billions of euros in tax payments, can at the same time get paid large amounts of tax payers’ money doing consultancy work for governments,” Ryding added.

We use cookies to help us understand and serve you better. Take a look at our Cookie Policy.