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EC Presents Tax Evasion Action Plan

by Ulrika Lomas, Tax-News.com, Brussels

07 December 2012


A "strong and cohesive" European Union (EU) stance against tax evaders is essential, the European Commissioner for Taxation has said, unveiling an Action Plan for a more effective response.

Announcing the package, Algirdas Šemeta said that around EUR1 trillion is lost to tax evasion and avoidance every year in the EU. The Action Plan sets out a comprehensive set of measures designed to help member states protect their tax bases and recapture the revenue legitimately due. Šemeta believes that unilateral solutions alone will not work, because "within a globalized economy, national mismatches and loopholes become the playthings of those that seek to escape taxation."

The Commission has accordingly adopted two Recommendations which it argues will encourage member states to take immediate and coordinated action on specific pressing problems. The first Recommendation foresees a strong EU stance against tax havens, and envisages the Commission going beyond the current international measures. The Recommendation aims at helping member states identify tax havens and at placing them on national blacklists. It also sets out measures to persuade non-EU countries to apply EU governance standards.

The second Recommendation focuses on aggressive tax planning. It lays out suggestions for addressing the legal technicalities and loopholes the Commission feels are being exploited by certain companies. In particular, member states are urged to reinforce their double tax conventions and to adopt a common general anti-abuse rule (GAAR). This GAAR would enable governments to ignore any artificial arrangement carried out for tax avoidance purposes and instead tax on the basis of actual economic substance, the Commission says.

Also included in the broader Action Plan are proposals for a Taxpayers' Code, an EU Tax Identification Number, a review of the anti-abuse provisions in key EU Directives, and common guidelines to trace money flows. In addition, the Commission wants to see member states reinvigorate the work of the EU Code of Conduct on business taxation. The Commission says that if solutions to remove particular mismatches are not agreed to and implemented in a timely and effective way, it will, where appropriate, come forward with legislative proposals for action.

Going forward, the Commission will set up active new monitoring tools and scoreboards to ensure that the Action Plan is progressed with. It will use a Platform for Tax Good Governance to monitor and report on member states' application of the Recommendations.

Commenting on the reforms, Peter Cussons, international tax partner at PwC, said: "The crackdown on tax evasion and abusive avoidance is not UK specific but sweeping across Europe. The EC is taking a measured approach, with fairly specific and carefully defined recommendations. These recommendations are likely to be applied across member states through peer pressure, although some countries may refuse to comply. The measures could also result in a common definition of a tax haven which will receive adverse treatment across Europe. The UK is ahead of the curve as we will get more details on our own GAAR next week. It will be interesting to see how the EC GAAR corresponds with the UK version.”

TAGS: tax | business | European Commission | tax avoidance | standards | European Union (EU) | Europe

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