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 we feature (1) From secrecy to complexity – intermediaries in the spotlight (2) Catching up on tax files – what’s cooking in Brussels? (3) Facts and figures, tax agenda, and more.
From secrecy to complexity – intermediaries in the spotlight
Back in December, Members of the Parliament Panama Paper inquiry committee (PANA) had said they would “look into the roles played by intermediaries in setting-up offshore constructions.” Ten hours of public hearing later, spread over three meetings between 24 January and 6 March, featuring more than 20 guest panellists, we can say that was not just hot air.
What to take away from PANA hearings? – complexityexplains it all.
Tax rules are so complex that taxpayers need intermediaries. “To facilitate compliance,” says Olivier Boutellis-Taft (Accountancy Europe). True but intermediaries also respond to complexity with more complexity. “Sophisticated financial engineering” has become the main driver of tax planning, explains Ronen Palan (Tax Justice Network). Intermediaries “set up complex structures which create opacity; if it becomes too difficult to operate in secrecy, instead of two jurisdictions, you use 50. There is a shift from secrecy to complexity.” Just to make things a little more complex, “each structure involves countless intermediaries,” says Anne Michel (Le Monde) – “lawyers, advisers, banks,” all sharing “a collective responsibility.”
That’s upon banks’ responsibility that Oxfam decided to shed some light in a new report. Why banks? – because country-by-country tax data of banks established in the EU is now publicly available under the Capital Requirements Directive; a “game-changer” says Oxfam, which did not wait long before exploiting the data. The NGO found in particular that the 20 biggest EU banks registered about a quarter of their profits in tax havens in 2015.
The report did not go unnoticed. S&D leaders called on President Juncker to investigate potential breach of EU competition rules. Tax Commissioner Pierre Moscovici also quickly reacted, giving the Commission credit for making Oxfam’s research possible in the first place. Not sure his tweet pleased Luxembourg’s Finance Minister, whose country is listed as a tax haven in the report, like Austria, Belgium, Cyprus, Ireland, Malta and the Netherlands.
Oxfam’s headline recommendation is the expansion of public country-by-country reporting to all multinationals. The NGO also urges the creation of a “global tax body to lead and coordinate international tax cooperation which includes all countries on an equal footing,” i.e. other than the OECD, sometimes seen as a ‘club of rich nations.’
For solutions on how to deal with intermediaries, we need to go back to PANA hearings. It is essential to raise the costs for those involved in tax evasion, suggests Daniel Hall (Burford Capital), with measures such as the threat of severe scrutiny or even license revocation. Another way to raise their compliance costs? – let’s adopt an “EU FATCA,” similar to the US Foreign Account Tax Compliance Act, says Brooke Harrington (Copenhagen Business School). Last but not least, whistleblowing has to be made “as easy as possible,” she adds.
Legislation is in the making on the latter since the Commission opened a consultation on whistleblower protection running until 29 May. When it comes to oversight and disincentives for intermediaries, the milestone is expected this summer, when the Commission proposes a measure to reflect the goals of the OECD’s BEPS Action 12 (Tax To Go, 24 Nov 2016).