On March 26th 2019, the European Parliament (“EP”) adopted a report on financial crime, tax evasion and tax avoidance (the “Report”). The Report was prepared by the EP’s special committee, commonly referred to as “TAX3” and carries a strong political message. The recommendations range from criticising Member States’ behaviour, existing tax rules and the US “FATCA” regime. The Report equally appeals for an urgent tax reform, ideally within the framework of a new body within the United Nations (“UN”).
The TAX3 special committee was established in March 2018 as a response to several revelations such as the LuxLeaks, the Paradise Papers and the Panama Papers. Building on the work of previous committees, TAX3 is responsible for monitoring the efforts of Member States in fighting tax evasion and tax avoidance. It takes positions with regard to legislative measures on the taxation of the digital economy and follows the workings of other institutions, such as the OECD and the UN.
The Report begins by asserting that existing tax rules are often unable to keep up with the increasing speed of the economy. The rules that are currently in force were developed in the early 20th century and are no longer suitable for the technological challenges of the 21st century. This in turn provides opportunities for certain market participants to avoid paying their fair share of tax, thereby harming the rule of law and producing inequality in society. In this context, the Report pleads for an effort by all EU Member State to undertake urgent tax reform. The Report recalls the criticism that had been voiced by the European Commission towards Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands due to the “unusually high level of foreign direct investments”, which are usually held by special purpose entities.
The intergovernmental agreements (“IGA”) on the US Foreign Account Tax Compliance Act (“FATCA”) were also subject to criticism for lacking reciprocity, giving the US far more information than it provides in return. The Report requests the European Commission to negotiate an agreement with the US that ensures more reciprocity in FATCA. Further, a common approach by the European Commission and the Council is called for so as to adequately protect the rights of European citizens and ‘accidental Americans’ against the exchange of information that derives from FATCA.
Going forward, the Report believes that the creation of an intergovernmental tax body within the UN with sufficient resources and enforcement powers would ensure that all countries can participate on an equal footing in the formulation and reform of a global tax agenda to fight harmful tax practices effectively and ensure an appropriate allocation of taxing rights. It suggests that this could be realized by upgrading the UN Committee of Experts on International Cooperation in Tax Matters to an intergovernmental UN Global Tax Body.
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