Under EU law, accountants and lawyers will have to report ‘aggressive’ tax planning schemes

The European Council has reached an agreement on a proposal aimed at boosting transparency in order to tackle aggressive cross-border tax planning.

The draft directive is the latest of a number of measures designed to prevent corporate tax avoidance.

It will require intermediaries such as tax advisors, accountants and lawyers that design or promote tax planning schemes to report schemes that are considered potentially aggressive.

The member states will be required to automatically exchange the information they receive through a centralised database. This will enable new risks of tax avoidance to be determined earlier and measures to be taken to block harmful arrangements.

Member states will be obliged to impose penalties on intermediaries that do not comply with the transparency measures.

“Enhancing transparency is key to our strategy to combat tax avoidance and tax evasion,” said Vladislav Goranov, minister for finance of Bulgaria, which currently holds the Council presidency. “If the authorities receive information about aggressive tax planning schemes before they are implemented, they will be able to close down loopholes before revenue is lost.”

Member states have complained that they have found it increasingly difficult to protect their tax bases, as cross-border tax planning structures become ever more sophisticated. The draft directive is aimed at preventing aggressive tax planning by enabling increased scrutiny of the activities of tax intermediaries.

The requirement to report a scheme won’t imply that it is harmful, only that it may be of interest to tax authorities for further scrutiny. Whilst many schemes have entirely legitimate purposes, the aim is to identify those that do not.

The proposal broadly reflects action 12 of the OECD’s 2013 action plan to prevent tax base erosion and profit shifting.

Agreement was reached at a meeting of the Economic and Financial Affairs Council. The Council will adopt the directive without further discussion once the text has been finalised in all official languages.

Member States will have until 31 December 2018 to transpose it into national laws and regulations.

The new reporting requirements will apply from 1 July 2020. Member states will be obliged to exchange information every three months, within one month from the end of the quarter in which the information was filed. The first automatic exchange of information will thus be completed by 31 October 2020.

The directive requires unanimity within the Council, after consulting the European Parliament. The Parliament voted its opinion on 1 March 2018.

Finance minister  Edward Scicluna today said the unanimous agreement reached was a testament to all member states' commitment, including Malta, in combating aggressive tax planning.

But he said Malta took exception at the way "small member states have been labelled in the press recently with regard to the European tax reform process", in an address to the Economic and Financial Affairs Council of the European Union, which met today in Brussels. This sentiment was also expressed by the six other member states which, like Malta, have been labelled negatively in the press by the European Tax Commissioner Pierre Moscovici, Scicluna said.

"Malta is fully compliant with EU rules and directives on taxation and is also fully compliant with international tax standards. The introduction of ATAD and ATAD II, coupled with today’s unanimous agreement on the proposal for a directive to amend the Directive on Administrative Cooperation, is a further demonstration of our commitment to this cause."