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By Joe Kirwin
The European Commission’s upcoming proposal to regulate intermediaries, including bankers, lawyers, accountants and others providing professional tax advice, will take a “hard law” approach that will include mandatory sanctions including possible fines or disciplinary measures.
The rules, due out in the second half of June, will come in the form of a directive that will include calls for mandatory disclosure of tax planning arrangements to tax authorities.
“The proposal we will make will have three pillars,” European Taxation Commissioner Pierre Moscovici told members of the European Parliament during a May 4 hearing of the institution’s special Panama Papers investigative committee. “They include a scope that covers all intermediaries, all harmful practices and all jurisdictions.”
Moscovici added that the European Commission prefers a “hard law” approach instead of a soft law method such as a code of conduct, and the legislation will include “sanctions” but not criminal penalties.
European Commission officials said the precise terms of the sanctions to be proposed haven’t been finalized, but a range of measures is under consideration including fines or disciplinary measures.
The proposal comes after recent studies published by European Parliament Panama Papers committee highlighted the role of tax intermediaries in setting up offshore companies in tax havens such as Panama.
As the European Commission finalizes its proposal, the plan has raised concerns among tax practitioners and other professionals who provide tax advice, especially when it concerns mandatory disclosure rules. The European Fiscal Confederation (CFE), the largest tax adviser trade group in the EU, has warned that a one-size-fits-all approach in a bloc with multiple regulatory approaches to lawyers, accountants, bankers and others would be counterproductive.
“Excessively burdensome mandatory disclosure rules at the EU level could potentially decrease the attractiveness of the EU internal market, which would run affront to the efforts of making the EU the most dynamic and innovative market in the world, ” the CFE said earlier in 2017 in a submission to the commission.
The CFE and other lobbying groups have emphasized that the European Commission must not go beyond Action 12 in the Organization for Economic Cooperation and Development’s plan to stamp out tax base erosion and profit shifting, which calls for the disclosure to tax authorities by intermediaries of aggressive tax planning arrangements. Based on the OECD recommendation, it shouldn’t be necessary for tax intermediaries to provide all of their tax planning arrangements, but only the generic and specific “hallmarks” of the plans.
“The CFE believes that mainstream tax advice should be left outside of the scope of any envisaged mandatory disclosure rules,” the group said in its submission. “Objective criteria limiting the scope of the reporting obligation to relevant scenarios (cases) should be considered by the European Commission.”
Chas Roy-Chowdhury, head of taxation at the U.K.-based Association of Certified Chartered Accounts and a commission advisory panel, insisted a hard law approach is unlikely to succeed and probably would face serious challenges due to the multiple ways the professional sectors to be covered are regulated in the EU.
“A soft law approach is really the most practical way to address this issue,” Roy-Chowdhury told Bloomberg BNA May 5. “The U.K. has a model approach with a code of conduct and ethical standards as well as new tax planning disclosure rules that took effect this year. This should be tried throughout Europe. There is no need to reinvent the wheel.”
Following the unveiling of the proposal in the second half of June, it will be presented to the Council of Economic and Financial Affairs. The legal base of the legislation will be as EU tax law and would require unanimous consent of all 28 EU countries. The European Parliament will have only a consultative role.
Moscovici said he hopes the proposal will be adopted by the end of 2017.
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