It has been a decade since the first Directive on Administrative Cooperation (Dac) was introduced in the European Union, and there have been six versions since, dealing with issues of taxation across the bloc.
Some of the areas covered by the directive (and its subsequent revisions include), according to the European Commission’s (EC) website, exchange of information, tax presence in other member states, controls of tax instruments and decisions issued by other states’ tax authorities.
The latest version, Dac6, sets out that all cross-border intermediaries must report, to a relevant tax man, any cross-border transaction involving at least one EU27 state.
But the EC has lamented that several member states refused to share enforcement details of the original and first three revisions of the directive.
The Council said: “In line with its responsibilities, the European Parliament (EP) has endeavoured to assess the enforcement and implementation of the Dac in the field of taxation and its first three revisions (Dac2 – 4).
“Unfortunately, the EP has been prevented from fulfilling its functions of political control. Despite the express agreement on the importance of a more structured cooperation […] the EP has not been granted access to the documents and data necessary to properly assess the implementation of Union law on administrative cooperation in the field of taxation.”
According to the European Council, “a large majority” of member states refused to grant access to the documents outlining the implementation of the directive.
Penalisation
While this may sound like petty politics, the lack of accessible data on the implementation of tax measures can impact the way wealthy individuals perform cross-border activities within the EU.
Fabrizio Alimandi, tax partner at CMS, believes this is largely due to an inability to process the amounts of information collected.
He told International Adviser: “After implementing tax information exchange directives, EU member states found themselves completely unprepared for the Big Data revolution.
“They are now in a tricky situation: the data is there, but with little capacity and resource to process it. They have a huge amount of data regarding taxpayer information and cross-border transactions, but are unable to properly process that data through the normal monitoring, screening and selecting avenues.”
So, what are the dangers for high-net worths?
Alimandi believes that their cross-border activities may become more difficult as the lack of enforcement data and control over them could “give rise to tax frauds and undue profit shifting”.
For instance, he said, “genuine tax planning might be penalised when cross-border transactions are taken with the primary objective of achieving undue tax savings”.
Fight back
While the issue is far from resolved, the EC said that the member states’ refusal to give access to enforcement documents “must be contested”.
It added: “In order to effectively curb tax fraud, tax evasion and tax avoidance, both internationally and within European borders, the EU must lead by example.
“While new legislation to strengthen and further improve the Dac is very welcome and needed, a strong focus must be on ensuring the thorough implementation of existing rules and standards, also in the field of anti-money laundering.”
