According to a draft law seen by Reuters, the EU will penalise intermediaries such as tax accountants and financial advisers that help wealthy individuals set up schemes to cut their tax bills excessively by shifting profits to low-tax countries.
The move was initially announced in a consultation paper published by Brussels last December looking at whether it should introduce a ‘mandatory disclosure scheme’ that would require professional services, to red flag schemes that facilitate tax evasion and tax avoidance.
It means that advisers will have to report cross-border tax schemes deemed to be too “aggressive” to tax authorities in the countries where they operate. The information should then be “automatically” shared among EU countries’ administrations.
Last December, the UK’s HMRC tax office confirmed new rules to issue hefty fines to financial advisers and other professionals found guilty of enabling tax avoidance, although measure has since been delayed.
Panama Papers
The EU proposal is part of tougher set of measures against intermediaries who assist in aggressive tax planning schemes since the Panama Papers revelations surfaced last year.
The draft law, expected to be published in June, said “effective, proportionate and dissuasive penalties” for non-compliance, but leaves EU states free to decide sanctions or fines at national level, reported Reuters.
Offshore wealth transfer
It is hoped an early warning system will discourage the transfer of wealth in one EU state to other countries or jurisdictions where they would be taxed at much lower rates.
If there is no intermediary, or the tax adviser is located outside the EU, the onus for disclosure would fall on the taxpayer using the arrangement.
Reuters also noted that in the draft law, the EU chose not to define “aggressive tax planning”, in bid to prevent the tax planning industry from finding loopholes.
Instead, Brussels plans to draw up a list of red flags, or “hallmarks”, designed to spot schemes that have “a strong indication of tax avoidance or abuse” that will be regularly updated.
Malta controversy
In recent months, some EU states have come under fire for their lack of appetite in fighting against tax avoidance, after claiming such measures will hamper the competitiveness of European financial centres.
Malta, which holds the rotating presidency of the EU, has been accused of being a tax haven after a report by a group of Green MEPs found that the European Union’s smallest member state helped multinationals avoid paying €14bn (£12.1bn, $14.8bn) in taxes between 2012 and 2015.
In April, the Island state proposed a slow down to the pace of tax reform in a document circulated among finance ministers.
