EU Panama Papers Panel Seeks Stricter Tax Avoidance Strategy

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By Joe Kirwin

European Union lawmakers are calling for more regulations of banks and accounting firms, a permanent public registry for beneficial owners of companies, and expanded whistleblower protections following an 18-month of investigation the Panama Papers leak.

The investigative committee also recommended a new permanent inquiry panel that would have expanded investigative powers to probe tax evasion by multinational corporations. It also urged EU member nations to make the Code of Conduct Group for Business Taxation—which meets in secret and recently adopted a tax haven blacklist—more transparent.

The Panama Papers report, approved by a vote of 492-50, included 211 non-binding recommendations. Several controversial amendments were rejected despite being approved during a committee vote earlier in the year: an EU-wide minimum corporate tax rate and “naming and shaming” four EU member states for aiding tax avoidance.

“The Panama committee investigations built on the journalists’ revelations with the aim of keeping up momentum, scrutinizing relevant EU legislation and its implementation, and coming up with credible recommendations on how to tackle money laundering, tax avoidance, and tax evasion,” Petr Jezek, a European Parliament member from the Czech Republic who served as a co-leader of the Panama Papers committee, said at a Dec. 13 news conference. “We have reached those goals and it will be crucial to maintain pressure for the implementation of our recommendations, especially when it comes to governments that are still not fighting the good fight.”

The committee has spent months digging into tax avoidance and the activities of intermediaries, such as banks and accounting firms, following revelations in documents leaked from the Panamanian law firm Mossack Fonseca & Co. and distributed among members of the International Consortium of Investigative Journalists. It held 30 meetings and conducted eight fact-finding missions.

Five Weeks to Respond

The European Commission now has five weeks to respond to the recommendations.

A permanent tax investigative committee is needed to monitor the implementation of the report’s recommendations and probe new revelations about tax evasion, such as those in the recent Paradise Papers, members said.

“It should be patterned after the U.S. Senate tax investigative committee,” said Sven Giegold, a German European Parliament member from the European Green Party.

As a first step toward setting up the permanent tax investigative committee, leaders of the eight European Parliament political groups are expected in the coming weeks to agree to set up a new, temporary tax committee to probe the Paradise Papers. The new panel will work until the first half of 2019, when the next European Parliament election will be held to determine the lawmakers for the next five-year term.

“Once the new European Parliament is established in 2019, it will be then decided on the makeup and mandate of the permanent tax inquiry committee,” Giegold said.

The Paradise Papers, a separate trove of leaked documents, revealed further use of offshore tax planning by multinationals and high-net-worth individuals trying to avoid tax.

More Than 40 Hearings

During its 18-month term, lawmakers on the Panama Papers committee held more than 40 hearings, including contentious meetings with leading EU companies, banks, tax lawyers, and accountants.

EU lawmakers were unsuccessful in accessing key documents from the Code of Conduct Group for Business Taxation. Some EU member nations refused to attend the Panama Papers hearings, including Malta.

Although the Maltese government didn’t participate, Maltese journalist Daphne Caruana Galizia testified before the panel in the first half of 2017 about alleged links that some Maltese government officials have with Panama accounts. Galizia was killed in October after a bomb exploded in her car.

Name and Shame

Malta, Ireland, Luxembourg, and Cyprus were the four EU member nations that political groups from the left—including the Socialists and Democrats and the European Green Party—wanted “named and shamed” for encouraging tax avoidance. However, the center-right European Peoples Party, which is the largest in the EU lawmaking body, led an effort to remove the amendment after the committee approved it in October.

In reaction to the European Parliament Panama Papers report, European Taxation Commissioner Pierre Moscovici welcomed its contents and said it should pressure EU member nations to approve key pieces of pending legislation. This includes legislation that would establish a regulatory framework for tax intermediaries, as well as legislation that would require large multinationals to provide public country-by-country tax and profit reporting.

“I am calling on EU member states to approve within six months these pieces of legislation,” Moscovici said during a debate in the European Parliament before the vote on the Panama Papers committee report took place.

Estonia, which holds the rotating EU presidency, began work on the pending EU tax intermediary proposal after it was proposed in June. The Estonian presidency told Bloomberg Tax in November that the negotiations were slow-going and complex because they involve “every type of tax law” in the EU.

The pending EU country-by-country profit and tax reporting legislation is blocked because a number of EU member nations oppose it due to its legal base. Because the tax base is EU single market legislation and not tax legislation, it doesn’t require unanimous consent in the Council of Ministers and the European Parliament has co-legislative powers.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bloomberglaw.com

To contact the editor on this story: Penny Sukhraj in London at psukhraj@bloombergtax.com

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