On March 26, 2019, the European Parliament adopted in plenary the final report on financial crimes, tax evasion and tax avoidance adopted by the TAX3 Committee (Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance) on February 27, 2019. The final report emphasizes the urgent need for tax reform to strengthen the fight against financial crimes and aggressive tax planning. The report provides recommendations for new rules that increase administrative cooperation, and for the establishment of new European and global bodies to address these issues.
On March 1, 2018 the European Parliament confirmed the decision taken in February 2018 by the Conference of Presidents to set up a special committee on financial crime, tax fraud and tax avoidance. The TAX3 Committee was the fourth committee, after the TAXE1, TAXE 2 and PANA committees, to address these issues and expands on the work carried out by its predecessors.
The TAX3 Committee, whose mandate ended on March 1, 2019, focused on issues related to financial crimes, tax fraud and tax avoidance including the taxation of the digitalized economy, citizenship programs, the EU blacklist, tax avoidance and its impact on third and developing countries, administrative cooperation and exchange of information, whistleblowers protection, and circumvention of European VAT rules. The final report, prepared by the co-rapporteurs Jeppe Kofod and Luděk Niedermayer, concludes the committee’s twelve-month mandate.
The recommendations adopted by the TAX3 Committee range from overhauling the system for dealing with financial crimes, tax evasion and tax avoidance, notably by thoroughly improving cooperation between the tax authorities involved, to setting up new bodies at the EU and global level. The report also expresses the Members of the European Parliament’s concern about the Member States’ perceived lack of political will in the Council to tackle tax evasion, avoidance and financial crime.
As regards aggressive tax planning (“ATP”), the report calls for the adoption of a comprehensive definition of ATP indicators, as well as their use in the framework of the European Semester and notes in particular that seven EU countries (Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and The Netherlands) display traits of a tax haven and facilitate aggressive tax planning.
In the field of corporate taxation, the report calls for:
Moreover, the report reiterates that intermediaries facilitating money laundering or tax evasion activities should face effective and dissuasive penalties and that professional secrecy should not be used to protect illegal practices or violations to the spirit of the law. The role of the EU mandatory disclosure rules (DAC6) and the broad definition of “intermediary” in addressing these issues was also recognized and welcomed in the report. The Committee furthermore calls on the Commission to reassess the extension of the DAC6 reporting obligation to domestic cases. As regards limiting the risks of conflicts of interest, the report suggests a rotation of auditors every seven years.
The numerous findings and recommendations also include:
The report adopted by the European Parliament in plenary with 505 votes to 63, with 87 abstentions will now be passed on to the Council and to the European Commission, although they are not binding to the Member States or EU institutions.
The final report should be seen as complementing the work and recommendations issued by TAXE1, TAXE2 and PANA Committees in November 2015, July 2016 and December 2017. The report validates the accomplishments in tackling tax evasion and aggressive tax planning but also exposes the amount of work still to be done in this field, in particular by enhancing administrative cooperation at EU and global level. Although most of the proposed recommendations have already been considered in other work undertaken by the European Parliament, this report is yet another indication of the increasing pressure the Parliament is trying to put on the other European institutions and on Member States with respect to countering aggressive tax planning and promoting tax transparency.
Should you have any queries, please do not hesitate to contact KPMG’s EU Tax Centre, or, as appropriate, your local KPMG tax advisor.