EU states agree to clamp-down on aggressive tax planning

[BRUSSELS] European Union finance ministers agreed new measures on Tuesday to force accountants and banks to report aggressive tax schemes that help companies shift profits to low-tax countries.

Ministers also decided to add the Bahamas, the US Virgin Islands and Saint Kitts and Nevis to the bloc's blacklist of tax havens, while Bahrain, the Marshall Islands and Saint Lucia were delisted.

Under the new rules, which were proposed by the European Commission in June, tax advisers including the Big Four accounting firms, banks and lawyers, would be required to inform authorities about "potentially aggressive tax planning arrangements" set up for their clients.

"It is a new progress for tax justice in the European Union," EU tax commissioner Pierre Moscovici told ministers at the end of a public roundtable where all governments agreed on the overhaul.

As part of the reform, information on harmful tax planning will be shared among the 28 EU states, in a bid to discourage the most aggressive tax avoidance schemes.

Once the new rules are finalised with the definitive approval of the European Parliament, tax advisers in the EU will risk fines if they do not report potentially harmful cross-border tax schemes.

Penalties should be "effective, proportionate and dissuasive," but EU states will maintain discretion in setting sanctions or fines at national level.

EU governments agreed on a compromise text put forward by the Bulgarian presidency of the EU, which slightly softened the original proposal made by the European Commission.

Cross-border tax arrangements set up with foreign jurisdictions which have a zero, or "almost zero", corporate rate would have to be reported, despite initial opposition by some governments.

The Channel Islands, the Bahamas, Bahrain and the Cayman Islands are among the jurisdictions who have no corporate income tax.

However, ministers scrapped a requirement to report tax schemes with jurisdictions that have a corporate rate "lower than 35 per cent of the average statutory corporate tax rate in the Union," which could have resulted in reporting obligations for arrangements with countries with a tax rate around 7 per cent.

Some states opposed these requirements arguing that "would cause an administrative burden disproportionate to the objectives," of the new rules, according to a working document prepared by Bulgarian officials.

Luxembourg, Malta and other smaller EU members have been among the most reluctant to introduce stricter rules to prevent tax avoidance, fearing they could harm competitiveness. But their finance ministers gave the green light to the Bulgarian compromise.

EU tax reforms require the unanimity of the 28 member states to be adopted.

Some members, including Britain, Ireland and Portugal, have already introduced penalties at national level for intermediaries helping set up aggressive tax schemes.

Ministers also formally added the Bahamas, the US Virgin Islands and Saint Kitts and Nevis to the EU list of tax havens, confirming earlier Reuters reports.

Caribbean islands hit by hurricanes last year were given more time to comply with EU tax transparency standards when the bloc's blacklist was established in December.

EU governments also decided on Tuesday to include Anguilla, The British Virgin Islands, Dominica and Antigua and Barbuda to a so-called grey list of jurisdictions which do not respect EU anti-tax avoidance standards but have committed to change their practices.

Simultaneously, they moved Bahrain, the Marshall Islands and Saint Lucia from the blacklist to the grey watch list, after they committed to change their tax practices.

The blacklist currently includes nine jurisdictions. In addition to the three Caribbean islands listed on Tuesday, they are American Samoa, Guam, Namibia, Palau, Samoa and Trinidad and Tobago.

Blacklisted jurisdictions could face reputational damage and stricter controls on their financial transactions with the EU, although no sanctions have been agreed by EU states yet.

REUTERS