EU TAX TRANSPARENCY TOOLS

EU tax transparency tools - effectiveness in the fight against tax evasion.

In 2018, the EU Council adopted rules aimed at boosting transparency to prevent aggressive cross-border tax planning. The directive targets intermediaries such as tax advisors, accountants and lawyers that design and/or promote tax planning schemes. Such transparency rules require practitioners in the field of taxation advisory to report schemes that are potentially aggressive.

EDWARD SPITERI

Edward Spiteri graduated with a Bachelors in Accountancy and Management and is currently undertaking a Masters in Accountancy with specialisation in taxation at the University of Malta. Edward Spiteri joined Erremme Business Advisors in 2018, his area of work is in the accountancy and tax advisory departments working on several local and international assignments.

Edward showed interest in corporate group structures inspiring him to specialise in the implications and tax perspective with relation to corporate group formations and intra-group dealings.

The information received will be automatically exchanged through a centralised database. Penalties will be imposed on intermediaries that do not comply.

EU tax transparency rules and the use of automatic exchange of information between Member States are delivering added-value when it comes to countries’ ability to track down tax evasion practices, according to an evaluation published in September 2019 by the EU Commission. An effective shift in Member State mentality and practices seems to be taking place, from an opaque exchange of information to a semi-transparent exchange of information seems to be the common practice. Some Member states are on the resisting end of this, whilst other member states are fully applying such a practice.

The reports provided by way of the EU tax transparency rules have provided a snapshot of the commonly agreed legislation underpinning the exchange of tax information on financial accounts and on the tax rulings that Member States provide multinational companies. For example, in 2017 Member States exchanged information on almost 18,000 tax rulings given to multinationals. The evaluation shows that Member States should now be receiving the information they need to fight tax fraud and evasion, and that the new rules have helped to deter taxpayers from hiding income or assets.

The EU Commission continues to encourage all EU countries to make full use

of their access to the wealth of useful tax information being made available through the new Member State communication. The report published on September 2019 assesses Council Directive 2011/16/EU (Directive on Administrative Cooperation), on administrative cooperation in the field of direct taxation. The report analyses the success, competence, lucidity, significance and the benefit of administrative cooperation for the EU Member States. The report itself and more information on the current rules are available. As such rules are still in the juvenile stages, a full assessment and in regards to practicality and utility cannot fully be examined. However it is notable that due to the implementation of the rules even more tax data has now started to be exchanged between Member States, such as, the corporate tax revenues paid by big companies in each country. From next year, Member States will also start sharing intelligence on the tax planning advice being provided by intermediaries in each country.

Nevertheless a number of difficulties arises in this regards. Notably; the difficulty in balancing both the needs of tax transparency and tax confidentiality between EU member states. In this regards many of the Member states are lobbying in favour of the idea that such rules are pushing towards a uniformed tax system across the European Union. However most scholars are raising strong arguments with regards to the negative impacts on the economical structures and governance on societies through the reduction in tax sovereignty of Member States brought abought by the introduction of EU tax transparency tools.