Tax To Go gives a snapshot of the latest political and legislative developments on taxation policy at the EU level. In this week’s issue of Tax To Go we feature (1) Beneficial owners – Commission sets out new rules for companies and trusts (2) Tax avoidance – Commission takes stock of progress made and (3) Parliament – PANA takes over from TAX2.

François Barry
Consultant

Beneficial owners – Commission sets out new rules for companies and trusts

The European Commission proposed a comprehensive set of new rules to increase transparency over beneficial ownership of companies and trusts on 5 July. The fourth Anti-Money Laundering Directive (AMLD) already sets out a framework on the matter. Yet, by concealing the identity of the ultimate beneficial owner, multi-layered structures involving anonymous legal entities facilitate tax avoidance, as the Panama Papers have shown.

The Commission wants to lower the threshold for declaring beneficial ownership for passive corporate entities, from a 25% ownership stake today to 10%. Passive entities do not create income on their own but mostly channel income from other sources. The 25% threshold is easy to circumvent, by, for instance, dividing ownership between five owners, each with a 20% stake. EU member states will also be required to give public access to information on companies and business-type trusts – a move welcomed by the Greens/EFA. Information on all other trusts remains restricted to parties who can demonstrate a legitimate interest. Yet, the Panama Papers have exposed that family trusts are also used to avoid taxation.

These rules and others, as set out in a proposal to amend AMLD, will go through the legislative process under the co-decision procedure (same weight for Council and Parliament). MEPs Krišjānis Kariņš (EPP, Latvia) and Judith Sargentini(Greens/EFA, Netherlands), co-rapporteurs on AMLD in 2013-2015, will lead the work in the Parliament.

In parallel, the Commission wants tax authorities to be given access to the national beneficial ownership registries – decision currently at the discretion of member states. This will require a revision of the directive on administrative cooperation in the field of taxation, to be submitted to the Council for adoption and to MEPs for consultation only. Finally, the Commission is looking at ways through which member states could automatically exchange their national information on beneficial owners, which are potentially relevant for them from a tax perspective.

David Cameron had successfully blocked past EU attempts to enhance transparency over ownership of trusts, allegedly to safeguard the UK’s wealth management industry. Interestingly enough, British law may have to remain relatively consistent with these EU requirements if the UK wants to retain access to the single market, however without the ability for London to influence the way the rules develop.

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Tax To Go will return in September when the European institutions restart work on public CbCR, FTT, AMLD, tax havens blacklist … and relaunch the long-awaited CCCTB project.