tax planning schemes for their clients. The proposals are to amend the existing Directive for Administrative Cooperation, but have yet to be adopted by the European Council, however, it is expected that the new legislation will come into force from January 2019.Recent media leaks such as the Panama Papers have exposed how some intermediaries actively assist companies and individuals to escape taxation, usually through complex cross-border schemes. The proposals aims to tackle such aggressive tax planning by increasing scrutiny around the previously-unseen activities of tax planners and advisers.
Cross-border tax planning schemes bearing certain characteristics or ‘hallmarks’ which can result in losses for governments will now have to be automatically reported to the tax authorities before they are used. The Commission has identified key hallmarks, including the use of losses to reduce tax liability, the use of special beneficial tax regimes, or arrangements through countries that do not meet international good governance standards.
The obligation to report a cross-border scheme bearing one or more of these hallmarks will be borne by:
- the intermediary who supplied the cross-border scheme for implementation and use by a company or an individual;
- the individual or company receiving the advice, when the intermediary providing the cross-border scheme is not based in the EU, or where the intermediary is bound by professional privilege or secrecy rules;
- the individual or company implementing the cross-border scheme when it is developed by in-house tax consultants or lawyers.
Member States will automatically exchange the information that they receive on the tax planning schemes through a centralised database, giving them early warning on new risks of avoidance and enabling them to take measures to block harmful arrangements. The requirement to report a scheme does not necessarily imply that it is harmful, only that it merits scrutiny by the tax authorities. However, Member States will be obliged to implement effective and dissuasive penalties for those companies that do not comply with the transparency measures, creating a powerful new deterrent for those that encourage or facilitate tax abuse.
The new rules are comprehensive, covering all intermediaries, all potentially harmful schemes and all Member States. Details of every tax scheme containing one or more hallmarks will have to be reported to the intermediary’s home tax authority within five days of providing such an arrangement to a client.
Though the UK is set to leave the European Union it’s still quite likely that HMRC will use this opportunity to gather information on UK taxpayers and companies that do business within Europe. Recent news reports show that HMRC has almost doubled its number of requests to foreign governments for assistance in cases of suspected tax evasion over a five-year period.
HMRC made 1,096 information requests of overseas tax authorities overseas, up 7% from 1,025 in 2015, according to the figures. These requests were made under ‘direct tax instruments’ including bilateral double taxation agreements, bilateral tax information exchange agreements and OECD information exchange agreements, all of which allow tax authorities to exchange information on taxpayers cross-border on request.
In contrast, only 591 requests of this nature were made by HMRC in 2012.
HMRC made 1,096 information requests of overseas tax authorities overseas, up 7% from 1,025 in 2015, according to reports. These requests were made under ‘direct tax instruments’ including bilateral double taxation agreements, bilateral tax information exchange agreements and OECD information exchange agreements, all of which allow tax authorities to exchange information on taxpayers cross-border on request. In contrast, only 591 requests of this nature were made by HMRC in 2012.
