TAX3 Newsletter Issue 2
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Newsletter Issue 2 - September / December 2018 Dear reader, As 2018 is coming to an end, I would like to express a few words about the active work carried out by the TAX3 Committee in the last 3 months, and to show the progress we have achieved in our fight against money- laundering, tax evasion and tax avoidance. A wide range of hearings were held, notably on the third country dimension in the fight against money laundering, tax fraud and evasion with particular focus on the impact of Brexit and the recent developments in Switzerland. The issue of the black and grey lists of non-cooperative tax jurisdictions was a core theme in the exchange of views with Mrs Lapecorella, Chair of the In this edition... Code of Conduct Group on Business Taxation. I was pleased to see her willingness to discuss with the European Parliament the way the EU tackles "The third country dimension in the fight against harmful tax measures within the EU. Although things are moving in the right direction, the progress is not yet as swift nor as substantial as we would like tax crimes, tax evasion and tax avoidance” it to be. Nevertheless, I want to recognise the significant progress made by the Council on this matter, particularly in terms of transparency. "Relations with Switzerland in Tax Matters and the fight against Money Laundering" Our Committee also held hearings on the risks associated with the issuing of Golden Visas, the use of free ports, specific economic zones and letterbox companies. Based on several studies provided by the EPRS services, we Study on "VAT Fraud: Economic impact, learned that these mechanisms need to be carefully monitored on a challenges and policy issues" European level, as they might entail risks leading to money laundering and tax fraud. Exchange of views with Fabrizia Lapecorella Recent scandals have also highlighted the risks posed by letterbox companies, which Danske Bank and ING both recognise as a common "Golden Visas and other Tax Privileges" vector facilitating fraudulent activities. Thanks to the revelations provided by whistle-blower, Mr Wilkinson, we gathered insight into how EUR 200 billion TAX3/ECON Joint exchange of views with were laundered through the Estonian branch of Danske Bank. A key conclusion from this hearing is that rules on banking supervision need to be Bruno Le Maire strengthened at Union level. Without coordination, money launderers will always win. "Combatting Money Laundering in the EU Banking Sector" Our committee has been following the news very closely over the past few months. Notably, we had a lively exchange of views with French Finance Minister Bruno Le Maire, on how the EU could create a level-playing field in Fact-finding mission to Isle of Man an increasingly digitalised world. Based on our fruitful exchange, I remain hopeful that the Council will soon arrive to a solution to ensure a fairer “Cum Ex scandal: financial crime and the taxation. loopholes in the current legal framework” As the Cum-Ex scandal made headlines in the European press, we decided to organise a joint hearing with the ECON Committee as to investigate how Presentation of the TAX3 Draft report billions of EUR were defrauded over the past years. As the panel made clear, this kind of fraud stems mostly from the lack of cooperation between national tax authorities. Exchange of views with Commissioner Pierre Moscovici Finally, the hearing with Google, Facebook and Kering highlighted the difficulties of defining the place where value is created. International tax "Agressive Tax Planning Schemes within the rules have to be reviewed on a global level. We also had a very interesting exchange of views with Commissioners Moscovici and Jourova, in order to European Union" monitor the state of play of implementation of recommendations made by the European Parliament in the last 4 years. "Who refused to participate in TAX hearing and missions?" I wish you a peaceful end of the year and a Merry Christmas. Petr Ježek Chair of the TAX3 Committee TAX3 Special Committee Newsletter - Issue 2 Public hearing on “The third country dimension in the fight against tax crimes, tax evasion and tax avoidance” On 26 September, after the summer recess, the Committee began its work by holding a public hearing on “The third country dimension in the fight against tax crimes, tax evasion and tax avoidance.” Dame Margaret Hodge reflected on the efforts of the UK to obtain better transparency on the ownership of firms based in the UK. Ms Hodge emphasised that despite the UK threats to lower its tax regime after Brexit, such a measure would be extremely difficult to implement in reality. She called Members of the Committee to closely monitor the negotiations of the FTA agreement between the EU and the UK, to ensure that taxation is addressed. EURODAD highlighted the two main issues within the international tax system - financial secrecy and the use of tax havens for profit shifting, adding that there is a need for an update and an enlargement of transfer pricing rules, as well as the creation of the common corporate tax base by the EU. DG TRADE representative presented on the current relationship between EU trade policies, the fight against money laundering and tax evasion with third countries, noting that there are provisions that deal with tax evasion in FTAs. However, she stressed that the EU cannot be pulling all the work by itself - an involvement of third countries' governments is required. Moreover, a representative from Action Aid Denmark recommended that the OECD model is less favourable for poor countries, when compared to the UN model. A UN expert highlighted that the biggest challenge facing the development of effective tax administration in third countries is the general lack of resources. Members of the Committee raised the case of certain multinationals moving their offices to the UK after Brexit as a possible proof that the UK would be pressured to become less collaborative on tax matters. Fears were voiced that the UK would become an even more attractive destination for money laundering after Brexit. Further information: TAX3 public hearing on "Third country dimension in the Fight against Tax crimes, Tax Evasion & Tax Avoidance" Public hearing on “Relations with Switzerland in Tax Matters and the fight against Money Laundering” On October 1st, the Committee discussed the topic of tax cooperation between Switzerland and the EU. A representative of the Commission explained that it is too early to assess the recent evolution of the tax cooperation between the EU and Switzerland, when referring to the agreement for exchange of information. The agreement came into force in 2017, with the first information exchange carried out in September 2018. TAX3 Special Committee Newsletter - Issue 2 When talking about the Code of Conduct on harmful taxation, he noted that the latter is only binding on the EU Member States, however, the work to extend its application to countries such as Lichtenstein and Switzerland has begun. The agreement to abolish five harmful tax regimes, which were considered negative for the development of a level playing field was made in 2014. Yet, the referendum in 2017 has shown that Swiss citizens are against the change. The whistle-blower Mr Elmer noted that there are no Swiss laws that protect whistle-blowers; in contrast, the laws are made to protect the industry through a variety of means - turning down investigations at an early stage, little to no punishment to white-collar criminals, retaliating against whistle-blowers, and very tough anti-libel laws. Mr Frank, an expert on money laundering, noted that Switzerland is still extremely protective of its banking secrecy, and is currently working on cultivating its cryptocurrencies central hub, while setting a very tough environment for whistle-blowers through social and legal pressure. He is sure that Switzerland should not be in the so-called grey list, but the black one, since he is sure that it “remains the mother of all tax havens”. Members insisted on a better cooperation with Switzerland, since the current state is not satisfactory. Further information: TAX3 public hearing on "Relations with Switzerland in tax matters and the fight against money laundering" Study on "VAT Fraud: economic impact, challenges and policy issues” On 10 October, the TAX3 Committee held a presentation of the study on “VAT Fraud: economic impact, challenges and policy issues”. Ms Lamensch presented the study stressing that the main issue as regards VAT fraud is a massive undervaluation to avoid paying a correct amount of VAT. The recently proposed definitive regime will remove the VAT exemption for ‘’non-certified taxpayers” and will therefore reduce the risk of carousel fraud, while not eliminating it fully as other types of fraud could appear. Ms Lamensch emphasised the importance of establishing a trusting relationship between the Member States, in order to effectively tackle VAT fraud. She elaborated on the idea of using new technologies to fight VAT fraud, suggesting that more money should be invested into bettering the data collection and tracking systems. Further information: Study on "VAT fraud: economic impact, challenges and policy issues" Exchange of views with Fabrizia Lapecorella, Chair of the Code of Conduct Group on Business Taxation On October 10th 2018 Ms Lapecorella gave a presentation on the work that the Group has been carrying out until now. The Group has been working on listing non-cooperative jurisdictions; however, Ms Lapecorella suggested that this exercise should not be seen as a blacklisting, but rather as an instrument to encourage changes in third countries to improve their harmful tax practices. Ms Lapecorella noted that the Group has analysed 455 preferential regimes within the EU Member States, in order to discover potential aggressive tax measures.