EU parliament to launch tax inquiry in the wake of the Paradise Papers

The EU parliament has voted in favour of launching a special committee, provisionally entitled Taxe 3, to tackle financial crimes, tax evasion and tax avoidance.

The committee has been launched in the wake of the Paradise Papers, and will build upon work carried out by the Taxe 1, Taxe 2 and PANA inquiry committees, the latter of which was launched in the wake of the Panama Papers’ revelations in 2016.

Taxe 3 will comprise of a committee of 45 MEPs and the inquiry will run for 12 months. The committee will need to be confirmed by a plenary vote on 1 March, but as it was negotiated across political groups, this is largely a formality.

Some key tax issues within the committee’s remit are to look at tax evasion and tax avoidance in relation to the digital economy and VAT fraud, particularly how EU VAT rules were circumvented in light of the Paradise Papers.

The committee will also monitor the progress of member states in removing tax practices that allow tax avoidance or tax evasion which are harmful to the functioning of the single market.

Analysing the third-country dimension in financial crime will also be within the scope of the inquiry.

Some measures are likely to more specifically impact the UK, in particular its crown dependencies.

Non-dom regimes and citizenship programmes

The committee will look at national schemes which provide tax privileges for new residents or foreign income, leading to non-dom regimes and the sale of residency or citizenship to circumvent paying tax.

Green negotiator for the agreed mandate and MEP Sven Giegold commented that the parliament will investigate these tax privileges for the first time.

This will likely impact non-dom regimes used to avoid tax in the UK, as Giegol said: “In the context of Brexit the committee will give particular attention to the British Crown Dependencies and Overseas Territories.”

Portugal, Italy, Malta and Cyprus will also be looked at for providing such “distorting privileges”.

EU tax haven blacklist

The committee will also assess the methodology and impact of the EU list of non-cooperative jurisdictions for tax purposes, as well as the removal of countries from the list and sanctions adopted towards listed countries.

In December 2017 the EU identified 17 countries to blacklist as tax havens, but later announced the revocation of 8 of those countries. Another 47 countries were put on notice, including UK crown dependencies Jersey, Guernsey and the Isle of Man.

While hailed as a positive move towards combatting improper tax practices, the list was criticised for the lack of clarity surrounding its processes and criteria.

Greens/EFA co-president and MEP Philippe Lamberts commented: “The EU’s tax haven blacklist has been rightly singled out as an area of concern. We need to get answers about what is really going on behind the scenes.”

“Until the Council reveals how it decides who goes on and who comes off this list, the public can have no confidence that it is being managed in an even handed way.”

Giegold explained: “The new tax haven blacklist of the EU lacks credibility and transparency. We will demand full access to all documents on the screening of third countries. We will assess whether some countries or jurisdictions received unjustified special treatment.”

He added that the committee will closely follow the compilation of the strengthened EU blacklist of non-cooperative money laundering jurisdictions. He said: “The mistakes of the tax haven blacklist may not be repeated. It is totally unacceptable that the EU’s blacklists do not include the most important places in the world of shadow finance.”