65 MEPs to investigate Panama Papers contraventions and tax evasion

Spotlight could fall on EU member states, like Malta, for facilitating ‘tax avoidance’ through profit-shifting

The European Parliament’s Conference of Presidents have agreed on a mandate for an inquiry committee to look into the so-called Panama Papers, which revealed detailed information on offshore companies and their ultimate beneficiaries.

The proposal by the Conference of Presidents will be voted by Parliament as a whole on 8 June during the plenary session in Strasbourg.

The Committee is to consist of 65 Members who would be tasked to investigate alleged contraventions and maladministration in the application of Union law with respect to money laundering, tax avoidance and tax evasion by the Commission or Member States.

After next week’s vote, the Committee will have twelve months to draw up a report.

The inquiry aims to investigate alleged contraventions of Union law and alleged maladministration in the application of Union law which appear to be the act of the Commission, and public administrative bodies of Member States.

The inquiry will investigate the potential breach of “the duty of sincere cooperation principle” enshrined in Article 4(3) of the Treaty of the European Union by any member state and their associate and dependent territories, to assess in particular whether any such breach may arise from the alleged failure to take the appropriate measures to prevent the operation of vehicles that allow to hide their ultimate beneficial owners from financial institutions and other intermediaries, lawyers, trust and company service providers or any other vehicles and intermediaries that allow the facilitation of money laundering, as well as tax evasion and tax avoidance in other member states.

The inquiry will also investigate the alleged failure of member states authorities to implement effectively Directive 2011/16/EU on spontaneous communication of tax information to another member state in case of grounds for supposing that there may be a loss of tax.

On 3 April 2016, the International Consortium for Investigative Journalism (ICIJ) uncovered 11.5 million documents from Mossack Fonseca, a global law firm based in Panama, also known as the “Panama Papers” scandal.

The records apparently show that Mossack Fonseca created more than 214,000 offshore entities in 21 jurisdictions considered as tax havens connected to people in more than 200 countries and territories. In Malta, government minister Konrad Mizzi and the Prime Minister’s chief of staff Keith Schembri were found to have opened offshore companies in Panama while in office.

According to ICIJ, the first “Panama Papers” revelations involves at least 12 Heads of State (including six in activity), 128 politicians or high level civil servants and 29 members of the Forbes 500 list. More data should be published by ICIJ for consultation, facilitating the European Parliament’s inquiry activity.

In addition to money laundering concerns, the revelations raise the importance of exchange of tax information between tax authorities and how European Member States act vis-a-vis non cooperative jurisdictions.

The revelations also show how major banks have driven the creation of these offshore companies in tax havens. Many banks’ subsidiaries and their branches – including banks which previously appeared in front of the TAX2 committee have been mentioned in the Panama Papers.

The European Parliament estimates that tax evasion and avoidance costs the European Union between €50-€70 billion a year while estimations for money laundering activities’ costs vary but put the numbers on a huge scale.

The Panama Papers revelations puts into question whether the European legislation for these priorities is adequate and whether Member States and the European Commission, as well as financial institutions as entities empowered and obliged by Union law to identify and report on their account holders have maladministered or have contravened provisions in their implementation of the aforementioned directives.

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