19/07/22

INTERNATIONAL TAX: EU Consults On Curbing Tax Evasion, "Aggressive" Tax Planning.

As published on wealthbriefing.com, Tuesday 19 July, 2022.

The move raises questions over to what extent EU member states' freedom to vary specific tax rates to gain a competitive advantage are being pushed to the margins.

The European Commission, the executive arm of the European Union, is examining how to step up the battle against forms of tax avoidance and tax evasion, looking at the role played by “enablers,” including those based outside the 27-member state bloc.

The EC is seeking views in a consultation period that runs until 12 October this year.

“Some enablers design, market and help set up structures in non-EU countries that erode member states’ tax base through tax evasion or aggressive tax planning. Such structures may use entities without minimal substance in order to take advantage of differences between national tax systems or tax treaties,” the document said.

“This initiative aims to step up the fight against tax evasion and aggressive tax planning by addressing the role of enablers who create these complex and non-transparent structures,” it said.

The fact that the EU is looking at this area will be controversial, even among its own members, because enforcement of tax rules is typically a national, rather than Europe-wide, one. Several member states of the EU such as Malta, Ireland and Luxembourg offer low-tax structures and incentives. Typically, tax avoidance is not a crime (and even positively encouraged by some states) while evasion is a crime. “Aggressive” tax planning is sometimes defined as structuring a person’s financial affairs to avoid tax when there is no underlying economic activity connected to it.

According to a briefing note by the Society of Trust and Estate Practitioners, or STEP, the consultation is designed to generate policy options that could include one of three requirements. The first would be for all enablers to carry out dedicated due-diligence procedures to check whether the arrangement or scheme they are facilitating leads to tax evasion or aggressive tax planning. Enablers would be banned from assisting in creating arrangements abroad that facilitate tax evasion or aggressive tax planning. A second option is to ban facilitating tax evasion and aggressive tax planning combined with due-diligence procedures as in the first option, but with an additional requirement for enablers who provide advice or services of a tax nature to EU taxpayers or residents to register in an EU member state.

A third option is to require all enablers to follow a code of conduct obliging them to ensure that they do not facilitate tax evasion or aggressive tax planning.