Earlier this month, the European Commission (the “Commission”) published a fact sheet setting out a series of questions and answers on the measures it is intending to take to increase tax transparency and to tackle tax abuse within EU Member States. The Commission has indicated that its goal is to “create the highest possible level of tax transparency”, noting that “recent media leaks have exposed loopholes in the international tax system, which need to be urgently addressed”.
Meanwhile, the UK government consultation on the new proposed corporate offence of failing to prevent the facilitation of tax evasion closed recently, and the responses are currently being considered. However, in the wake of Brexit, a new Prime Minister and a new Government, it remains to be seen whether in the short term this initiative will be afforded the departmental and parliamentary time it requires.
The EU Plan
The key points raised in the Commission’s fact sheet were as follows:
- A coordinated approach is needed across all Member States given the cross border nature of tax evasion and its negative impact on tax paying citizens, businesses and the economy as a whole. It is hoped that a coordinated approach will prevent the legal loopholes which can be created by unilateral Member State efforts, which are vulnerable to exploitation.
- Earlier this year, new EU legislation preventing tax evaders from hiding money abroad came into force, binding Member States to share information with each other regarding individuals’ financial accounts including details of dividends, capital gains and other financial income. This is part of the Commission’s plan to increase transparency between Member States. In the same vein, from next year, all Member States will automatically exchange information with each other on tax rulings and will share reports on the activities of multinationals.
- The Commission has sought to progress a number of initiatives designed to ensure fair and efficient taxation. Central to this is the intention to ensure that companies pay tax where they make their profits. Member States are continuing to work on reviewing their preferential regimes and transfer pricing rules, and in June 2016 anti-abuse rules were agreed in the Anti-Tax Avoidance Directive.
- The Commission has confirmed that “work has already started to develop a common EU list of tax jurisdictions that do not respect good tax governance standards, which should be ready in 2017”.
- There has been an increased level of focus in the EU on the role of intermediaries in assisting with tax evasion or avoidance schemes with both the European Council and the European Parliament calling for disclosure schemes and tougher measures against those enabling or promoting aggressive tax planning. The final initiative has not, however, been settled on at this stage and the Commission has indicated that it will launch a public consultation on the issue later this year.
- The Commission has indicated that, in light of the important role of whistle-blowers in disclosing acts of tax fraud, it intends to assess whether further protections need to be in place in some areas of EU law.
- The EU will continue to work closely with G20, the OECD and other international partners that are currently working on improving the international agenda against tax evasion and avoidance.
It is notable that the Commission has indicated its intention to focus on the role of intermediaries in assisting with tax evasion or avoidance schemes, as this is one of the issues that the UK Government is seeking to address in its new proposed offence of “failure to prevent the criminal facilitation of tax evasion”.
The proposed UK corporate offence
The new offence proposed by the (previous) UK Government is designed to address a concern that, presently, prosecutors are required to show that senior decision makers (usually board members) were involved in and aware of the relevant illegal activity, and that this benefits organisations with decentralised decision making and those that deliberately turned a blind eye to wrong doing.
The offence as currently drafted is clearly inspired by the model used in the Bribery Act 2010: like the corporate offence in the Bribery Act, the proposed offence will have extra-territorial effect; will apply to corporations that have failed to prevent “associated persons” from committing the offence (in this case, criminally facilitating tax evasion); and will contain a “reasonable prevention procedures” defence.
However, unlike the corporate offence under the Bribery Act, the proposed tax offence does not (currently) require that any benefit accrue to the company concerned in the failure to prevent tax evasion. The implications of this are that many companies would be required to evaluate all third party entities and persons with whom they have a relationship that goes beyond a single referral. The proposed offence is yet to be finalised, and the Government is currently considering the second round of consultation responses which were received earlier this month. However, it is likely that, like the EU Commission, the UK Government will wish to maintain a focus on the role of intermediaries in its clamp down on tax evasion schemes.
A number of common themes are identified in both the EU plan and the Government consultation paper: both highlight particular concerns regarding the use of offshore tax structures and the role of intermediaries such as financial institutions, law firms and tax advisers in assisting with tax evasion schemes.
Some UK regulators have expressed the hope that the proposed offence may become a more general offence of failure to prevent economic crime. In any event, there is much work to be done to get the draft bill into shape, and its short term progression may take a back seat whilst Brexit negotiations take centre stage. However, with increasing international focus on tackling tax evasion, the topic is likely to remain on the agenda for this Government and future Governments. In the long term, we think it is unlikely that the UK will wish to fall out of step with other leading financial centres in relation to anti-tax abuse measures.