Tax evasion and avoidance deprive public budgets of billions of euros a year, create a heavier tax burden for citizens and cause competitive distortions for businesses that pay their share. They also undermine the EU goals of growth, competitiveness and a stronger Single Market. The cross-border nature of tax evasion and avoidance means that action only at the national level cannot tackle these problems and can even lead to further problems. Unilateral efforts by Member States to protect their tax bases new create burdens for tax payers, legal uncertainty for investors and new loopholes for aggressive tax planners to exploit.
Therefore, the Commission is pursuing an ambitious campaign for a coordinated EU approach against tax evasion and avoidance, to boost Member States' collective stance against these problems, restore fairness in taxation and ensure stability for citizens and businesses in the EU.
What has the Commission done to strengthen the fight against tax evasion and avoidance in the EU?
The Commission is pursuing an ambitious agenda to strengthen EU defences against tax evasion and avoidance, which have already resulted in a number of landmark achievements. This work has been based on two key pillars:
1) Increasing Tax Transparency: Over the past couple of years, new transparency proposals by the Commission have led Member States to commit to an unprecedented level of openness and cooperation between their tax authorities.
From 2017, all Member States will automatically exchange information with each other on their tax rulings (IP/2015/4610) and will share country-by-country reports on multinationals' activities (IP/16/663). The Commission has also proposed increasing transparency towards the public, by requiring large multinationals to publish key tax-related information online (IP/16/1349).
New legislation also entered into force in 2016 to prevent tax evaders from hiding their money abroad (IP/13/530). Member States are now bound to automatically exchange a wide range of information with each other on individuals' financial accounts. Agreements have also been signed with Switzerland, San Marino, Andorra, Liechtenstein and soon Monaco to ensure a similar level of transparency between the EU and these countries.
2) Ensuring Fair and Effective Taxation: Progress has also been made on key initiatives to ensure that companies pay tax where they make their profits, as set out in the Commission's Action Plan in June 2015 (IP/15/5188). In June 2016, Member States agreed on legally binding anti-abuse rules in the Anti Tax Avoidance Directive, which will block some of the most common forms of aggressive tax planning (IP/16/1886). Member States' preferential regimes and transfer pricing rules are being reviewed, in line with new international standards. The External Strategy that the Commission presented in January has been endorsed by Council, and work has begun on all of its proposed actions, including a common EU list of uncooperative tax jurisdictions (see below). The EU's Financial Regulation is also being reviewed, to prevent EU funds from being routed through tax havens, and the Commission will present its proposal on this by the summer.
The Commission is also preparing to re-launch the Common Consolidated Corporate Tax Base (CCCTB) before the end of the year, which will close down many opportunities for aggressive tax planning, as well as improving the business environment in the Single Market (MEMO/15/5174).
In addition, the Commission has launched investigations under state aid rules into whether certain Member States granted tax advantages to selected multinational companies.
Why has the Commission proposed more new tax transparency measures?
The Commission's goal is to create the highest possible level of tax transparency, to allow authorities to detect and prevent tax abuse and to boost citizens' confidence in their tax systems.
Recent media leaks have exposed loopholes in the international tax system, which need to be urgently addressed. The Commission is responding to these challenges as a priority, building on the far-reaching transparency initiatives it has already delivered.
It has become clear that individuals and companies can still escape taxation by hiding funds and assets offshore, often in opaque companies, trusts and funds. Therefore, the Commission has proposed strengthening and extending the EU transparency requirements for beneficial ownership, so that tax authorities can properly identify the true beneficiary behind a trust or company.
Second, the role of intermediaries (e.g. financial institutions, law firms, tax advisors) in promoting and assisting in tax evasion schemes has been put in the spotlight through the recent revelations. In line with calls from the European Parliament to subject tax advisors to greater scrutiny, the Commission will examine the most appropriate measures to create more transparency and accountability in this sector.
Third, despite important advances in the international tax good governance agenda, certain third countries still facilitate or even encourage tax evasion and avoidance. As foreseen in the Commission's External Strategy, work has already started to develop a common EU list of tax jurisdictions that do not respect tax good governance standards, which should be ready in 2017. The preparatory work on this list is expected to have a strong dissuasive effect on third countries that refuse to respect tax good governance standards or enable aggressive tax planning.
What action will the Commission take with regard to tax advisors?
In May 2016, the Council asked the Commission to consider a possible EU mandatory disclosure scheme to deter intermediaries that assist in tax evasion or avoidance schemes. The European Parliament has also called for tough EU measures against those that enable or promote aggressive tax planning. Under the BEPS project (Action 12), the OECD recommends that countries introduce mandatory disclosure requirements for aggressive tax planning schemes.
The Commission has already launched work to determine the best approach to increasing oversight of those that enable and promote tax evasion and avoidance. This could include, for example, increasing transparency towards tax authorities on aggressive tax planning schemes. As yet, it is too early to say exactly what the final initiative will be. The Commission will launch a public consultation on the issue by autumn to gather feedback on the issue.
The Commission will also work with the OECD and international partners to see if and how the BEPS Action 12 can be expanded on and strengthened, to ensure an appropriate global response to those that promote abusive tax practices.
Why is the Commission addressing the question of whistle-blowers in this Communication?
Many of the recent high-profile cases of tax evasion and avoidance have been brought to light by whistle-blowers. Such whistle-blowing not only helps disclose acts that threaten the public interest but can also increase the capacity of authorities to detect and react to tax fraud, evasion and avoidance. The European Parliament and many stakeholders have called for greater protection of whistle-blowers that reveal possible wrongdoing. While some specific areas of EU law include provisions to protect whistle-blowers (e.g. anti-money laundering, market abuse and trade secrets), the protection of whistle-blowers lies partially within the competence of Member States. Nonetheless, the Commission will assess whether there is scope to reinforce the protection of whistle-blowers in some areas of EU law, while also monitoring and supporting Member States in their action to strengthen this protection at national level.
What is the common EU list of non-cooperative tax jurisdictions?
The Commission proposed a new process for creating a common EU list of third countries that do not respect tax good governance standards in the External Strategy in January 2016. This list is intended to replace the current incoherent mix of national lists with a single, objective EU list, based on international standards. A common EU list should have a dissuasive effect on third countries that pose a risk to Member States' tax bases, and should help to promote higher levels of tax good governance globally.
The Commission set out a three-step process to compile the EU list:
1. The pre-analysis phase: the Commission will do a pre-assessment of all third countries, based on economic indicators. The results will be presented to Member States in a Scoreboard, to identify the most relevant tax jurisdictions for screening;
2. The screening phase: The selected third countries will be screened against clearly defined good governance criteria. There will be an open dialogue with all screened third countries at this stage, to try to address any concerns that are raised;
3. The listing phase: Member States will decide which countries to list, based on the outcome of the screening process.
Only those countries that refuse to comply with international tax good governance standards, or to engage with the EU in addressing concerns raised, will be listed. As indicated in the External Strategy, special consideration will be given to the challenges and needs of developing countries in this process.
Clear criteria for de-listing will be set for all countries on the list. Member States should also decide on common countermeasures to apply to listed third countries.
What progress has been made on the EU list and when will it be ready?
In May 2016, the Council endorsed the proposed listing process and called for an EU list to be ready in 2017. The Commission will present the results of the pre-assessment (Scoreboard) to Member States in the Code of Conduct Group in the coming weeks. In the autumn, the Code Group should agree on the third countries to be screened and the precise criteria for the screening process. Once this is agreed by Council, the Commission and Code Group will begin the screening stage, with a view to having a first EU list by the end of next year.
What is the difference between the common EU tax list of uncooperative tax jurisdictions and the new EU anti-money laundering list of high risk third countries, to be adopted in the coming days?
The anti-money laundering list (which is due to be adopted by delegated act in the coming days) aims to address risks to the EU's financial system caused by third countries with deficiencies in their anti-money laundering and counter-terrorist financing regimes. It follows the global approach developed by the Financial Action Task Force (FATF) to deal with countries that have not implemented internationally agreed standards on anti-money laundering. On the basis of this list, banks must apply higher due diligence controls to financial flows to the high risk third countries.
The aim of the common EU list of uncooperative tax jurisdictions is to address external risks to Member States' tax bases, posed by third countries that refuse to adhere to international tax good governance standards. Depending on what Member States ultimately decide, the criteria used to compile this list may include anti-money laundering standards, but are much wider than this. The Commission proposed that the criteria for the common EU list should be based on the full range of international tax good governance criteria i.e. transparency, information exchange, fair tax competition and implementation of the new Base Erosion and Profit Shifting (BEPS) measures. This would ensure that the standards respected within the EU are also respected by our international partners, and would be the most effective approach to dealing with third countries that facilitate or encourage aggressive tax planning. Member States will define the exact nature of the criteria for the common EU list in the autumn and will consider what countermeasures should be applied to listed countries.
The two lists may overlap on some of the countries they feature, but it makes sense that they are kept separate. They have different objectives, different criteria, a different compilation process and different consequences. Nonetheless, the two lists should complement each other in ensuring a double protection for the Single Market from external risks.
How do these new initiatives fit in with the international agenda against tax evasion and avoidance?
In the Commission's upcoming work, announced today, there are clear links with international work on to fight tax abuse and promote tax good governance. For example, the G20 has called for a new international standard for exchange of information on beneficial ownership and a new global list of uncooperative tax jurisdictions. BEPS Action 12 recommends that countries should increase scrutiny of those that enable or promote aggressive tax planning through mandatory disclosure schemes.
Addressing these issues at EU level will ensure that all Member States respond to the identified challenges in a clear, coherent and effective way, which is aligned to the international approach. The EU is showing global leadership on tax good governance matters, both by implementing the internationally agreed standards at home and pushing for their full and widespread implementation abroad. The fact that the EU has already started work on these issues may help give added impetus to the global work. It will continue to work closely with the G20/OECD and other international partners to ensure that the approach to these issues remains mutually reinforcing.
How do your proposals on exchange of information on beneficial ownership relate to the initiative for a pilot project of Member States, as endorsed by ECOFIN?
Under the announced pilot project, Member States have agreed to exchange information with each other on the beneficial owners of companies and trusts. The Commission will now look into the possibility of using an EU framework for this automatic exchange of information. We consider this to be a natural extension of the transparency provisions already enshrined in EU law.
 The OECD has conservatively estimated that $100bn-$240bn is lost to global profit shifting every year – equivalent to between 4% and 10% of global corporate tax revenues. The European Parliamentary Research Service put the revenue lost to corporate avoidance at around €50-70 billion a year in the EU.