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TAX3 Committee’s report on financial crimes, tax evasion and tax avoidance adopted by European Parliament

The European Parliament recently adopted a report on financial crimes, tax evasion and tax avoidance as prepared by the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3).

The TAX3 Committee was established by the EU Parliament in March 2018 following the controversy surrounding the LuxLeaks, Panama Papers, Paradise Papers, Football Leaks, Bahamas Leaks and cum-ex cases and this report concludes their year long mandate.

The report notes that existing tax rules are unable to keep up with the increasing speed of the economy and highlights the necessity to reform international tax rules so that they are “fit for the new economic, social and technological challenges of the 21st century” such that all market participants pay their fair share of taxes.

The report contains details of tax havens and jurisdictions which facilitate aggressive tax planning and cites a recent report which identified Ireland, Cyprus, Luxembourg, Malta and the Netherlands as being tax havens based on tax practices that distort economic flows. The report goes on to recommend that the Commission should regard these countries as EU tax havens unless substantial tax reforms are implemented.

Also referred to is the EU’s list of non-cooperative jurisdictions which was introduced in December 2017 and suggests that Ireland, the Netherlands, Luxembourg, Hong Kong, the British Virgin Islands, the Cayman Islands and Singapore should be added to the list based on the high volume of special purpose entities in these jurisdictions which it notes are often set up for tax reasons.

In addition, the report calls on the need to tackle so called “letterbox companies” (i.e. companies registered in a jurisdiction for tax avoidance or tax evasion purposes only and without any significant economic presence). In this regard, the report notes that the high level of FDI in Ireland, Luxembourg, Malta, Cyprus and the Netherlands relates generally to special purpose entities set up for the purpose of exploiting tax loopholes and that this represents an aggressive tax practice. The report recommends that the European Commission should carry out fitness checks of the initiatives in place to address the use of such letterbox companies in the context of tax fraud, tax evasion, aggressive tax planning and money laundering.

In its conclusions, the report highlights the necessity for the continuation of the work carried out by the TAX3 Committee (and previously the TAXE, TAX2 and PANA Committees) in the form of a permanent subcommittee of the Committee on Economic and Monetary Affairs (ECON) within the European Parliament which would allow for cross-committee participation. It remains to be seen whether such a permanent body will be established within the European Parliament, however it seems likely that the committee’s work will be continued in some form given the ongoing focus on international tax transparency.

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