EU Puts "Aggressive" Tax Planning In Its Sights

Tom Burroughes

14 November 2016

The ability of wealthy individuals to mitigate taxes is under further assault with news that the European Union intends to explore how to crack down on what it calls “aggressive” tax planning.

Last week, the European Commission set out proposals on how a “mandatory disclosure scheme for tax advisors could be put in place”. In a statement, the EC said such rules would, if enacted, oblige intermediaries to give early information on schemes which could be viewed as "aggressive or abusive planning for tax purposes”. It said such rules would chime with non-binding guidelines as set by the Organisation for Economic Co-operation and Development.

The move follows the approach European and other lawmakers in industrialised nations of the G20 are taking against companies seeking to cut tax burdens through “base erosion” or shifting of profits to low- or no-tax jurisdictions.

Among countries taking the fight to supposedly aggressive forms of tax avoidance is the UK, for example, which has introduced a general anti-avoidance rule, or GAAR. However, critics claim tax avoidance is not clearly defined and is open to political abuse.

In general, it is understood that aggressive or abusive avoidance involves cases where an activity is entered into where there is no underlying economic rationale and where the sole purpose is to avoid tax. The issue also highlights how the dividing line between avoidance, which is generally not seen as illegal, and evasion, which is, has been blurred in recent years. The process has been driven in part by cash-strapped governments trying to stem outflows of revenues.

"Complex financial schemes and opaque corporate structures do not happen by accident: some intermediaries have developed these into an art form. These experts offer their clients the opportunity to aggressively exploit loopholes or to shift their profits so as to substantially reduce their tax bill. The public consultation we're launching today will help us to work out ways to deter intermediaries from designing such schemes and to give our Member States greater insight and information to enable them to put a stop to them,” Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs union at the EC, said in a statement.