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European Council Agrees To Anti-Evasion Initiatives

by Ulrika Lomas,, Brussels

24 May 2013

The European Union (EU) should channel the political momentum for a tougher stance on tax evasion, Council President Herman Van Rompuy has said.

Setting out the agenda for yesterday's Council meeting, Van Rompuy argued: "It's high time to step up the fight. We've seen headline-after-headline highlight loopholes in tax systems. We know it's a problem none of you can solve on his-or-her own. And that, Europe-wide, hundreds of billions of euros are at stake." For Van Rompuy, it is a question of "jointly fighting unacceptable practices that allow some people to avoid paying taxes all together. It's simply a matter of fairness."

The Council's conclusions reinforce this message. Echoing statements made by Van Rompuy in a letter to ministers earlier this week, the Council writes that combating tax fraud and evasion has become essential in the context of tight budgetary constraints. With a view to ensuring the "political and social acceptability of fiscal consolidation," the Council "agreed to accelerate work in the fight against tax fraud, tax evasion and aggressive tax planning."

In particular, the Council intends to prioritize broadening the scope of automatic information exchange. The European Commission will propose amendments to the Directive on administrative cooperation next month. According to the Council, the reforms will extend exchange provisions to cover a full range of income. The Council also agreed that the EU should play a key role in "promoting the automatic exchange of information as the new international standard."

Another priority highlighted by the Council is the implementation of the Commission's Action Plan on fraud and evasion. The Plan, unveiled last December, contains two Recommendations designed to foster a stronger EU stance against so-called "tax havens" and tackle aggressive tax planning. According to Tax Commissioner Algirdas Šemeta, the package could "dramatically improve our chance of eliminating these pervasive problems, and return hundreds of billions of euro back to the public purse."

Negotiations are to begin as soon as possible with Switzerland, Liechtenstein, Monaco, Andorra, and San Marino on improving savings tax agreements. The Commission was last week given the go-ahead to launch the talks, and the Council has now agreed that the proposed revised EU Directive on the taxation of savings should be adopted by the end of the year. Reforms were first mooted by the Commission in November, 2008, but a definite deal on its implementation has been continually deferred, much to Semeta's disappointment. The changes are intended to close existing loopholes, better prevent tax evasion, and ensure the taxation of interest payments channelled through intermediate tax-exempted structures.

Somewhat controversially, the Council will consider suggestions for changes to reporting rules. The Directives on the disclosure of non-financial and diversity information by large companies and groups could therefore be amended to require a country-by-country reporting system.

Among the other Council conclusions are the necessity of strengthening the EU's Code of Conduct on business taxation and of identifying beneficial ownership, and the importance of accepting the Commission's Directives on quick reaction and reverse change mechanisms as a means of preventing value-added tax fraud. The Commission will assess the challenges of taxation in the digital economy in advance of an October summit on the digital agenda, and will recommend revisions to the "parent/subsidy" Directive by the close of 2013.

Finally, while clear that the EU itself should press forward with its own initiatives, the Council is nonetheless determined that action must be taken at a global level. Countries ought to be encouraged to "meet appropriate standards of good governance in tax matters," and engage in global efforts against base erosion, profit shifting, lack of transparency and harmful tax measures.

Addressing a post-meeting press conference, Commission President José Manuel Barroso said that he was largely pleased with the decisions taken. He was, nonetheless, critical of the vagueness of some of the conclusions. With regard to the automatic exchange of information, a principle he sees as "critically important," Barroso explained, "Quite frankly, I would prefer this to be more precise in the conclusions, but I have to recognise that there was progress in that area."

Going forward, UK Prime Minister David Cameron believes that June's G8 summit could represent a turning point. He stressed that the crackdown remains at the "heart of the agenda," and that there is now a genuine opportunity to "break down the walls of corporate secrecy." Barroso intends the EU to promote a global standard at the meeting.

The Council will report on the progress of its conclusions by December.

TAGS: tax | business | European Commission | interest | budget | corporation tax | Liechtenstein | Monaco | United Kingdom | agreements | tax planning | Switzerland | tax reform | standards | European Union (EU) | Andorra | San Marino | Europe

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