The Laundry Man by Kenneth Rijock ( Penguin/Random House UK)

Sunday, July 24, 2022

IS THE EUROPEAN COMMISSION SEEKING TO SHUT DOWN OR REFORM MALTA'S OFFSHORE INDUSTRY ?


The European Commission is considering an Initiative directed at combating Enablers Facilitating Tax Evasion and Aggressive Tax Planning, and is calling for evidence for an Impact Assessment. A portion of the document calling for comments appears below. Given that a large portion of the Maltese economy is deducted to providing financial services that could be considered either tax evasion or aggressive tax planning, both of which result in a substantial loss of tax revenue for other EU Members, the impact of such an Initiative on the Maltese economy would be substantial.

Whether this Initiative is an EC response to the widespread use of Malta by companies in EU Member jurisdictions with higher tax rates cannot be assumed, but it is possible that Malta is a primary reason for the creation of the Initiative. Read the excerpt from the "Call for Evidence and for an Impact Assessment" and see how the implementation would restrict the current operation of Malta's favorable tax schemes, and the companies that offer them.


B. Objectives and policy options

The overall objective of this initiative is to prohibit enablers who design, market and/or assist in the creation of tax arrangements or schemes in non-EU countries that lead to tax evasion or aggressive tax planning for the EU Member States. The proposal will include clear and objective criteria for defining the forms of aggressive tax planning that are prohibited This initiative is in line with the Commission’s continued commitment to fighting tax evasion and aggressive tax planning.

The baseline scenario used as a benchmark assumes that the current national legislative rules and administrative practices on enablers remain unchanged. The Commission will assess a range of policy options, which may lead to a legislative initiative, to achieve the objectives based on the principle of proportionality. A range of policy options might include the following:

Option 1: Requirement for all enablers to carry out dedicated due diligence procedures

This option involves a prohibition on enablers from assisting in the creation of arrangements abroad that facilitate tax evasion or aggressive tax planning. In addition, this option foresees the requirement for all enablers to carry out a test to check whether the arrangement or scheme they are facilitating leads to tax evasion or aggressive tax planning. It also requires the enabler to maintain records of these due diligence procedures in all cases. This option could be combined with appropriate measures to address possible non-compliance.

Option 2: Prohibition to facilitate tax evasion and aggressive tax planning combined with due diligence procedures and a requirement for enablers to register in the EU

This option involves a prohibition on enablers from assisting in the creation of arrangements abroad that facilitate tax evasion or aggressive tax planning. The enablers covered by the scope would be required to carry out dedicated due diligence procedures as outlined under Option 1. In addition, enablers that provide advice or

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services of a tax nature to EU taxpayers or residents would be required to register in an EU Member State. Only registered enablers could provide advice or services of a tax nature to EU taxpayers or residents. In cases of non- compliance, enablers may be removed from the registry.

Option 3: Code of conduct for all enablers

This option involves the requirement for all enablers to follow a code of conduct that obliges enablers to ensure that they do not facilitate tax evasion or aggressive tax planning.

In addition and regardless of the policy option chosen, a new measure to boost transparency and combat possible tax evasion and aggressive tax planning related to EU investments abroad could be developed. This would require EU taxpayers (both individuals and legal persons) to declare in their annual tax returns any participation above 25% of shares, voting rights, ownership interest, bearer shareholdings or control via other means (the level commonly used in the EU AML legislation) in a non-listed company located outside of the EU.

C. Likely impacts

General

The impact will vary depending on the ultimate design of the initiative and, in particular, on the exact scale and scope of the initiative and on who will bear its burden. Importantly, the monitoring and enforcement mechanisms will need to be carefully designed and calibrated so that they are both proportionate and effective. The initiative is likely to have an impact on the following stakeholders, which should be analysed as far as possible:

  •   businesses engaging and operating in the EU, including those that avail of and provide tax advice or services;

  •   individuals resident in the EU, including those that avail of tax advice or services;

  •   the tax administrations of EU Member States.

    Likely economic impacts

    The initiative should have two main economic impacts: (i) on Member States’ tax revenues and (ii) on the level playing field and, therefore, competitiveness in the Union. The intended economic impact of the options proposed should curb tax evasion and aggressive tax planning facilitated by enablers, and thereby increase the tax revenue available to the Member States, leading to sounder and more sustainable public finances in the medium and the long term. Limiting the scope for aggressive tax planning and evasion opportunities should dissuade enablers from engaging in tax evasion and aggressive tax planning on behalf of their clients. 

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