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European Commission initiates consultations on intermediaries that facilitate tax evasion

July 18, 2022

The European Commission (EC) has launched public consultations on a new draft directive on intermediaries that facilitate tax evasion and "aggressive tax planning".

The EC states that some activists "develop, market and help build structures in non-EU countries that undermine the tax base of member states through tax evasion or aggressive tax planning". According to the statement, such structures can be used by organisations that do not have a minimum physical presence (substance) to take advantage of differences between national tax systems or tax treaties. The Directive under discussion will seek to strengthen regimes to counter tax evasion and aggressive tax planning by addressing the role of intermediaries who create complex and opaque structures. The Directive will also provide the Member States with the appropriate mechanisms, such as monitoring and enforcement cooperation, necessary to ensure the practical application of the rules.

The consultations are designed to develop a range of policy options that may include one of three requirements. First, all contributors must undertake specific due diligence procedures to ensure that the agreement or scheme does not encourage tax evasion or aggressive tax planning. Intermediaries will be prohibited from assisting in creating foreign mechanisms that provide opportunities for tax evasion or aggressive tax planning. Keeping all records of due diligence procedures will also be necessary.

The second option is for the directive to include a ban on the promotion of tax evasion and aggressive tax planning, combined with due diligence procedures, as in the first option, but with an additional requirement for persons providing advice or services regarding taxes to taxpayers in the EU or residents of the Member States.

The third option proposed in the consultations is to require all intermediaries to comply with an appropriate code of conduct, requiring them to ensure that they do not contribute to tax evasion or aggressive tax planning.

In addition to the options outlined above, the EU intends to develop new measures to increase transparency and combat possible tax evasion and aggressive tax planning associated with EU investments abroad. For example, European Union individuals and entities will be required to declare on their annual tax returns that they hold more than 25 per cent of the shares, voting rights, ownership interest, bearer shares or control by other means in a non-EU listed company.

The European Commission, which is already consulting on a new directive to combat the misuse of shell companies, plans to adopt the Directive in the first quarter of 2023. The consultations will last until October 12, 2022.

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