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Europe proposes tighter rules for tax planners

The European Commission has proposed rules that would force lawyers, consultants, tax advisers and banks to disclose plans that help companies and individuals to avoid taxes.22 Jun 2017

Under the new transparency rules, intermediaries who design and promote tax planning schemes for clients would have to report some schemes to tax authorities.

The Commission has identified characteristics, or 'hallmarks', to identify the schemes that must be reported, including the use of losses to reduce tax liability, the use of special beneficial tax regimes, and arrangements through countries that do not meet international good governance standards.

Intermediaries must report any such scheme when they supply it for use by a company or individual. They will have five days to do so from the date they provide the scheme.

If the intermediary is not based in the EU, or is bound by professional privilege or secrecy rules, then responsibility for reporting the scheme will fall on the individual or company using it.

Schemes developed by in-house tax consultants and lawyers must also be reported by the individual or company implementing them, the Commission said.

The information reported on these tax planning schemes will automatically be shared between EU countries and will also be stored in a database that will give early warning of new tax avoidance risks, allowing countries to take steps to block any "harmful arrangements", the Commission said.

Countries will be obliged to implement "effective and dissuasive" penalties for companies that do not comply with the transparency measures, it said.

European Commission vice-president Valdis Dombrovskis, responsible for the euro and social dialogue, financial stability, financial services and capital markets inion said: "The EU has become the frontrunner when it comes to bringing more transparency to the world of aggressive tax planning. This work is already reaping results. Today we are proposing to hold responsible the go-betweens who create and sell tax avoidance schemes. Ultimately, this will result in greater tax revenues for member states."

Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com said: "The EU’s new rules are closely modelled on the UK’s DOTAS (Disclosure of Tax Avoidance Scheme) rules, which we have had since 2004. They will therefore have little additional impact on UK advisers, although as always it will be important to check the details."

"While this clearly signals the EU’s continuing move towards greater transparency, full compliance with the rules in practice may take some time – a five day time limit for disclosure is likely to be challenging for some advisers," Self said.