Corporate

Corporate Tax Avoidance

The Council of the EU has just reached an agreement to work on a directive intended to tackle cross-border tax planning. This agreement was reached on 13 March 2018 at a meeting of the Economic and Financial Affairs Council. The fundamental idea of the directive is to pre-empt tax planning schemes detrimental to the interests of the EU’s member states before they are actually implemented.

The directive, which is currently still in draft, has two components. It requires intermediaries involved in tax planning, such as tax advisors, accountants and lawyers, to report schemes that may be considered aggressive in terms of cross-border tax planning. These intermediaries will be required to report such dubious schemes to their national authorities. Tax advisors and other intermediaries who do not comply with these regulations will suffer penalties imposed by their national authorities.

The second component of this directive requires member states to exchange the information received through such reports by means of a centralised database. The measure will greatly increase the ability of the EU’s member states to assess the potential risk of aggressive tax planning schemes across borders, and block them before they are implemented. 

The EU deems this directive necessary in the light of the increasing sophistication of tax planning schemes that are implemented across multiple borders The very sophistication of these schemes endow them with a level of opacity that has hitherto been very hard to penetrate. Vladislav Goran, the minister for finance of Bulgaria, which currently holds the presidency of the Council said that the key to the EU’s strategy for combating tax avoidance and tax evasion was to enhance transparency.

The agreement will be adopted without further discussion once the text has been finalised in all official languages. Member States will have to adopt it into their national law by 31 December 2019. The new requirements will then come into force on 1 July 2020. Member States will be obliged to exchange information every three months. The exchange of information is required to take place within one month of the end of the quarter in which the information was filed.