European Commission targets offshore funds in tax crackdown

The European Commission has turned its attention to trusts and offshore funds in a bid to crack down on tax avoidance, as it unveiled new ownership-disclosure rules.

Under the proposals announced in Strasbourg on Tuesday, trusts and offshore funds will be obliged to disclose their beneficial owners to national authorities. The proposal is the first indication of the impact of the British referendum result on EU policy in the realm of taxation and financial services.

British Prime Minister David Cameron had successfully campaigned to exclude such vehicles from previous legislation, and it is understood that Tuesday's announcement had been deferred until after the British referendum.

Rules

The new rules are being devised to help tax authorities properly identity the true beneficiary behind a trust or company. In particular they are targeting the kind of trusts and offshore funds that were exposed by the Panama papers scandal, which revealed how the Panamanian law firm Mossack Fonesca facilitated thousands of individuals and companies in cutting their tax liability. They are being introduced as an amendment to the existing EU anti-money laundering directive.

Speaking in Strasbourg, Pierre Moscovici, the EU's economics commissioner, said that the new rules would help tackle loopholes that allow tax evaders to hide funds offshore.

“The Commission is determined to inject more openness and more trust into taxation. We have already come a long way and now is the time to go further.”

Under the proposal, which must be scrutinized by the European Parliament and European Council, existing, as well as new accounts will be subject to due diligence controls.

Information

Tax advisors will also come under fresh scrutiny – the Commission said it will examine how to “shed more light” on tax advisors’ activities and those who promote and enable aggressive tax planning.

In addition, the Commission will looks at ways member states can automatically share information between each other on beneficial owners of companies and trusts.

As with previous tax proposals, the issue of public disclosure is likely to be contentious, with certain types of trusts only obliged to disclose publicly their ownership structures to people with a “legitimate interest.

The European Commission is also continuing work on compiling a common EU-list of ‘third countries’ which are deemed not to respect good tax governance, with final agreement expected next year. The issue is a contentious one for some member states, however, with negotiations ongoing on what form of ‘screening’ or objective criteria will be used to determine which country is put on the list.