CFE and EU Tax, Compliance Policy Bulletin 80

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AML CFT, Company taxation, EU, VAT (Value Added Tax), European Union Commission, double taxation, roadmap, transfer pricing, business taxation-CFE

CFE Statement on the Use of Shell Entities for Tax Avoidance Purposes

CFE Tax Advisers Europe is the European umbrella association of tax advisers. Founded in 1959, CFE brings together 33 national tax institutes, associations and tax advisers’ chambers from 24 European countries. CFE was the initiator of the Global Tax Advisers Platform through which it is associated with more than 600,000 tax advisers worldwide. CFE is part of the EU Transparency.

CFE Tax Advisers Europe has published an Opinion Statement on the European Commission public consultation on fighting the use of shell entities for tax avoidance purposes. From the perspective of CFE, the challenges to successfully designing balanced measures addressing abuse of shell entities at EU level are three-fold:

  1. How to meaningfully scope shell entities and provide definitions that are sufficiently clear to exclude entities engaged in legitimate holding, estate planning, financial, insurance/reinsurance and/or commercial activities, even if they do not need staff and equipment to achieve such purposes;
  2. How to choose a policy solution that is fit for purpose in the context of the existing measures aimed at targeting solely abusive/illicit use of shell entities;
  3. How to avoid complex legislation which includes hallmarks, such as those used in DAC 6, instead of clear legal definitions. Discussions that the CFE has had with relevant stakeholders, suggest that many taxpayers, their advisers and tax administrations are still struggling to understand the scope of those hallmarks.

CFE is of the view is that new anti-avoidance initiatives are not necessary at present, given that there are a plethora of existing rules and practices enshrined in EU law which would be suitable to address the concerns outlined in the EU initiative to tackle abusive use of shell entities for tax avoidance purposes. Prior to any potential EU action, the Commission, in cooperation with Member states should assess Member States’ practices and legislation (where existing) to address use of shell entities for tax avoidance and evasion purposes.

Pandora Papers: Largest Ever Data Leak on Corruption & Illicit Assets

The International Consortium of Investigative Journalists has published details of an investigation carried out by over 600 journalists into the largest known data leak on the use of offshore companies, dubbed the Pandora Papers.

The Pandora Papers leak comprises over 11 million files on the operations of 14 particular offshore service firms who facilitate the use of offshore companies. Individuals identified in the leak are accused of using offshore vehicles for concealing illicit assets. In the leak, over 900 companies in offshore havens have been linked to high-profile individuals and public officials, including country leaders, ministers, ambassadors and the like. Notably, former UK Prime Minister Tony Blair is identified as having purchased an offshore company which owned a London building valued at 6.5 million pounds, thereby avoiding paying hundreds of thousands in stamp duty. President Nicos Anastasiades of Cyprus is also tied to the leak, through a law firm he founded, which is accused of hiding assets of Russian billionaires. The current Czech Prime Minster is also identified as using an offshore company to purchase a USD $22 million dollar chateau in the south of France.

More detail from the investigations is expected to be made public. Information on the leaks can be found on the ICIJ website, the BBC website and The Guardian website.

France and U.S. Sign Joint Statement on CbCR Exchange

United States and France signed a joint statement, published by the Internal Revenue Service (IRS), concerning the implementation of spontaneous exchange of Country-by-Country Reports (CbCR) for the fiscal years 2020 and 2021.

As a result of this agreement, the Competent Authorities of US and France will commence with spontaneous exchange of CbC Reports on basis of the existing Double Tax Treaty between the two countries, no later than 15 months after the last day of the fiscal year of the MNE Group to which the Spontaneously Exchanged CbC Report relates. The exchange the CbCR will occur spontaneously through an exchange in the common format. The agreement is signed on basis of Article 27 of the US – France Double Tax Treaty.

Historical Agreement on International Taxation Under OECD Auspices

Following years of difficult discussions, under the auspices of the OECD and G20, 136 jurisdictions reached an agreement on global minimum tax and partial reallocation of profit to market countries, marking the most significant reform of international tax rules in history. The Statement released by the OECD/G20 Inclusive Framework on BEPS states the detail of the agreement of 8 October 2021 and the annex with an  implementation timeline. Under the agreement, more than $125 billion from circa 100 largest Multinational enterprises (MNEs) will be reallocated to countries in which such companies have had extensive operations and revenue, but did not have taxable presence for corporation tax purposes under existing rules. With Ireland, Estonia and Hungary having withdrawn their objections, in a European context, the agreement now paves the way for implementation with instruments of EU law. Countries that have not yet joined the agreement are Kenya, Nigeria, Pakistan and Sri Lanka.

EU Updates ‘Blacklist’ of Non-Cooperative Jurisdictions

The Council of the European Union, sitting as ECOFIN, on its meeting of 5 October decided to remove a number of countries from the EU blacklist of non-cooperative jurisdictions for tax purposes, whilst adding certain countries to the ‘watchlist’. The Council removed Anguilla, Dominica and Seychelles from the EU list, given they were considered ‘largely compliant’ by the OECD Global Forum regarding the exchange of information on request. A number of countries were added to the watchlist, formally Annex II, with countries that comply with international tax standards but that have yet to implementing EU’s tax good governance requirements. Costa Rica, Hong Kong, Malaysia, North Macedonia, Qatar and Uruguay have now been added to this document, while Australia, Eswatini and Maldives have have been removed for having implemented the necessary reforms, as stated by the Council.

European Parliament Resolution on EU Code of Conduct for Business Taxation

The EU Parliament has renewed criticism of the EU Blacklist following the publication of the Pandora Papers and the latest update, adopting a Resolution at its plenary session in Strasbourg on 6 October. The Parliament and other critics of the Blacklist call for the criteria to be reviewed and linked to real economic activity in a given jurisdiction by companies, and for zero or low tax jurisdictions to be automatically included in the list.

According to the resolution, the EU should reform the Code of Conduct for Business Taxation and called on the Commission to evaluate the effectiveness of patent boxes and other intellectual property (IP) regimes under the new nexus approach defined by Action 5 of the BEPS Action Plan on HTP, including the impact on revenue losses. The European Parliament also asked the Commission to consider proposals if there is no impact of IP regimes on real economic activity, while noting that the US administration is proposing to repeal its Foreign-Derived Intangible Income (FDII) rules.

UK to Introduce AML (Economic Crime) Levy

The UK Government has published draft legislation introducing a special tax, anti-money laundering levy, charged on AML-supervised entities on basis of the size of the entity. The Government expects to raise £100 million per year from the AML-regulated sector to fund the Economic Crime Plan reforms. According to the legislation, AML-regulated entities with over £10.2 million in UK revenue will be liable to pay the levy, to be collected as of April 2023 by the public sector AML statutory supervisors: the tax administration (HMRC), Financial Conduct Authority and the Gambling Commission.

Professional bodies from the UK have argued that the levy should pay for the priorities under the Economic Crime plan and the money should be ring-fenced, to effectively counter-economic crime and that the cost should not only fall on firms supervised by the largest professional bodies.

G20 Endorse International Taxation Agreement

On 13 October, G20 Finance Ministers endorsed the agreement reached by 136 jurisdictions on global minimum tax and partial reallocation of profit to market countries, stating in its Communique that “This agreement will establish a more stable and fairer international tax system. We call on the OECD/G20 Inclusive Framework on BEPS to swiftly develop the model rules and multilateral instruments as indicated in and according to the timetable provided in the Detailed Implementation Plan, with a view to ensure that the new rules will come into effect at global level in 2023.” Under the agreement, more than $125 billion from circa 100 largest MNEs will be reallocated to countries in which such companies have had extensive operations and revenue, but did not have taxable presence for corporation tax purposes under existing rules.

The European Commission, via the Commissioner for the Economy, Paolo Gentiloni, released a press release welcoming the endorsement of the deal by the G20, and confirming the EU’s intention to implement the agreement into EU law, stating “Once the OECD has finalised the model rules for Pillar 2, the Commission will swiftly put forward a directive for its implementation in the EU. For Pillar 1, we will carefully examine whether a directive is needed to ensure its consistent and effective implementation at EU level.”

 

Source: Malta Institute of Taxation Click here, CFE Tax Advisors Europe Click Here

Please contact David Marinelli should you wish to discuss any matter relating to your Malta registered company.