The EC (European Commission) has published its draft legislation compelling financial service providers or intermediaries to disclose any international tax planning schemes they have encouraged, enabled or assisted in any way.

The proposal was first announced last year in September as a result from the data leak from Panamanian Law Firm Mossack Fonseca, which the EC said made it clear that tax advisory firms and financial service providers play a key role in enabling and facilitating tax evasion.

Going forward, compulsory disclosure regulations are mandatory for any companies who seek to profit from the “promotion, design or implementation of tax evasion & avoidance schemes”. Service providers and financial institutions will have to automatically report all offshore schemes designed to by-pass both local and international anti-avoidance measures, including the OECD CRS (Common Reporting Standard) regulations for the automatic information exchange regarding taxes.

The legislation will amend the Administrative Cooperation Directive, which already regulates the automatic exchange of bank interest information between EU member states’ tax authorities.

THE MAIN IMPLICATIONS OF THE DIRECTIVE:

• Service providers who design and promote aggressive avoidance structures will be required to declare the details to their national tax authority within five working days of beginning to promote them.
• Measures could even go on to require banks to record and report all payments from third countries or those considered to have tax haven status.

The Directive will follow the UK’s tax disclosure regulations by making the obligation to report fall on service providers and intermediaries. However, if all the service providers in a scheme are based outside of EU member states, the disclosure obligation will fall on the client, respectively.

All EU member states will circulate the details of the tax schemes disclosed to each member state via an electronic central directory of schemes that everyone will have access to. Member states will be able to apply the provisions from January 1st 2019 onwards.