EU tackles tax abuse in the wake of Panama Papers

Early in July, the European Commission announced a series of initiatives to improve tax transparency in order to fight tax evasion following the revelations that came as the result of the publication of the so-called Panama Papers. To date, progress has already been made in a number of areas, such as:

moves to end tax avoidance and aggressive tax planning by companies

tax transparency legislation to prevent hiding money in Andorra

rules requiring the sharing of tax information between states that will come into national law by 1 January next year

sharing tax information on multinationals, regulations that are already in place

The new rules are aimed at closing gaps in the tax framework that continue to exist even with these legislative efforts. The latest proposals will amend the Fourth Anti-Money Laundering Directive, and the Commission has published a communication explaining its priorities in this area.

The recent leaks exposed loopholes that still allow tax evaders to hide funds offshore. These loopholes must be closed and our measures to stamp out tax abuse must be intensified. The Commission is determined to inject more openness and more trust into taxation.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs



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An amendment to the Directive on Administrative Cooperation allows tax authorities to identify the ultimate beneficiary behind every company, trust and fund. It is proposed that tax authorities have access to national anti-money laundering information, “particularly beneficial ownership and due diligence information.” In addition, amendments to the Anti Money Laundering Directive will allow existing, as well as new, accounts to be subject to due diligence controls, including the passive companies and trusts so often found among the Panama Papers.

Other rules will be subject to further discussion. For example, the EC will examine how countries could automatically exchange information on “beneficial owners of companies and trusts with a potential tax impact.” The EC also recognises that companies and individuals cannot accomplish tax avoidance without the help of professional advisors and will look at rules to expose the activities of these advisors and put into place disincentives for this kind of behaviour. Beyond increasing disclosure of such schemes, the EC is unsure as to what else might be put in place as a deterrent. The EC will launch a public consultation on the issue by the autumn to gather feedback on the issue.

Tax avoidance can cost the public purse many millions of euros each year. Understandably, people and businesses want tax to be fairer and more effective. To do so, we are working together at European level to make the system more transparent, making it difficult for potential tax evaders to move profits elsewhere.
EC Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue

Similar to its work on Andorra, agreements have also been signed with Switzerland, San Marino, Liechtenstein and soon Monaco to ensure a similar level of transparency between the EU and these countries. In yet stronger moves, the EC is establishing a list of countries with poor tax regimes and has set out tax good governance standards in its External Strategy for Effective Taxation to help identify such countries. It is hoped to have a ‘worst first’ list by the end of 2017. At present, there is only what the EC has called an incoherent jumble of national lists, and it is determined to construct a cross-border EU-wide list. It has set out three steps to achieve this list:

The pre-analysis phase: the Commission will do a pre-assessment of all countries, based on economic indicators. The results will be presented to member states in a scoreboard, to identify the most relevant tax jurisdictions for screening

The screening phase: The selected countries will be screened against clearly defined good governance criteria. There will be an open dialogue with all screened countries at this stage, to try to address any concerns that are raised

The listing phase: Member states will decide which countries to list, based on the outcome of the screening process

This list will be different from the EU anti-money laundering list of high risk countries, regulations for which have already been adopted, thought there may be some overlap.

While this was not the case with the Panama Papers, many cases of tax avoidance are exposed by whistle-blowers. Current EU law protects whistle-blowers who expose money laundering, market abuse and trade secrets, but further protections are needed for those exposing tax avoidance. Much of the legislation that protects whistle-blowers is at the national level and the EC will look at coordinating these regulations so greater protection is offered across the whole Union.

Continue the conversation at Compliance Week Europe: 7-8 November at the Crowne Plaza Brussels. Join us as we look at changes in global anti-corruption regulations, slave labour risks in your supply chain, and how to detect fraud, to name just a few topics. Learn more