(Bloomberg) -- If the U.S. doesn’t agree by June 2019 to exchange the bank account details of non-U.S. citizens with governments around the world, it will be placed on the European Union’s tax haven blacklist.
The U.S. is on the clock as the 2019 deadline nears for adopting and applying the Organization for Economic Cooperation and Development’s common reporting standard, Valere Moutarlier, the EU’s head of direct taxation, told a new European Parliament tax investigative committee May 15. The Paradise Papers panel was set up in March following a data leak of more than 13 million files detailing the way wealthy individuals and large companies avoid taxes via offshore structures, such as trusts.
“We have transparency criteria that is very clear that the June 2019 deadline must be respected,” said Moutarlier, a director at the European Commission’s Directorate-General for Taxation and Customs Union, in response to numerous questions from EU lawmakers about why the U.S. isn’t already on the blacklist
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The EU is currently drawing up a list of sanctions for blacklisted countries that include withholding taxes on multinational corporate group dividends. The list is due to be finalized by the end of 2018.
Moutarlier also noted that the 2017 U.S. tax act ( Pub. L. No. 115-97) has been referred to the OECD Forum for Harmful Tax Practices to determine whether it violates international standards, and the outcome will help determine whether the U.S. violates the EU’s corporate tax haven criteria. “The U.S. tax reform raises new corporate tax issues,” Moutarlier said.
Praise for U.S. GILTI
Criticism of the new U.S. law wasn’t uniform.
Johan Langerock, charitable umbrella Oxfam’s EU policy adviser for tax and inequality, highlighted the global intangible low-taxed income (GILTI) provisions in the U.S. tax reform.
“The EU should adopt measures similar to the GILTI because now profits coming from low-tax or zero-tax countries will be taxed,” Langerock said. “That is not the case currently with the EU member states.”
GILTI of a U.S. shareholder of a controlled foreign corporation is generally the U.S. shareholder’s net income from all CFCs, minus a 10 percent deemed return on tangible property. If GILTI isn’t already taxed at a rate of at least 13-1/8 percent overseas, it faces a 10.5 minimum tax.
Alex Cobham, an official with the U.K.-based Tax Justice Network, insisted the most important flaw with the EU tax haven blacklist, which currently contains nine countries and jurisdictions, is the failure to include the U.S.
“The EU may be the only actor big enough to discipline the U.S. as it emerges as the biggest global threat to financial transparency and cooperative corporate tax behavior,” Cobham said.
During the hearing, the European Commission noted the EU tax haven criteria will be updated in 2019 to include transparency requirements when it comes to beneficial ownership of companies, as well as having an expanded list of anti-base erosion and profit shifting measures.