The European informer system for tax optimization
Our Finance Minister announced a few weeks ago the introduction – faster than expected by Europe – of a reporting requirement for accountants and tax advisers. In fact, aggressive tax planning will be the subject of the reporting. Judging from the reactions and questions of all those involved in tax advice, their response to the news can be described as “horrified”. To put things in context, it is worth remembering that tax professionals already have to contend with a heavy workload of reporting obligations and audit tasks which are not directly related to their core business. The Anti-Money Laundering Act and the Business Continuity Act are just a few examples. The former forces the tax adviser to act as a henchman for the financial intelligence unit. While under the latter, he is also required to be the guardian of the economic continuity of companies. And now, he should also assume the role of assistant controller for the Ministry of Finance.
The obligation to report aggressive tax planning is not the brainchild of our Minister of Finance, however. It was developed by the big pundits of the OECD. In 2012, the OECD declared war against international tax evasion which was considered unfair and, according to the critics, was pretty much an almost bottomless bag of tricks. This bag of tricks is full of strategies designed to use loopholes and mismatches in tax legislation to pay the least taxes possible by shifting profit. In 2012, the OECD named the action plan Base Erosion and Profit Shifting, now known worldwide as BEPS.
In BEPS, aggressive tax planning was initially described as the artificial transfer of profits to more favourable tax regimes. But the definition very quickly extended to acts contrary to the spirit of the tax law. Hard for a definition to be vaguer! In the European Union, which ultimately is responsible for the implementation of the legislation, those blurred lines have in fact been broadly welcomed. The Commission describes the concept as taking advantage of technicalities or loopholes between different tax regimes in order to reduce taxes. These tricks can take a multitude of forms. The Commission also refers to “acts contrary to the spirit of the tax law” as an essential characteristic. Up to the Member States to determine what is this spirit. We can conclude that, for the moment, there is no clear definition of the concept of aggressive tax planning. By the by, it should be noted that implementation alone will already be a serious challenge for Europe. The holy grail of the European Union is the free internal single market, which includes the right to organise tax matters in the most favourable way across borders. This will inevitably create an area of tension with aggressive tax planning.
Belgium has several tax regimes that are very useful for the hocus pocus of international tax optimization. To name but a few: the notional interest deduction or the preferential regimes for intellectual property rights. Another observation: Belgium is not very critical of the exemption of foreign income. The international community would like our country to be more critical with regard to the withholding tax exemption, for example on dividends or income from hybrid loans. It would also appreciate it if we introduced more control rules. The technicians among us have every interest in preparing for CFC rules, extensive testing for beneficial owners and anti-hybrid provisions.
Under the aggressive tax planning reporting requirement, chartered accountants, tax advisers and lawyers who assist their clients in such complex cross-border financial arrangements or some aspects of those arrangements – which presumably are liable to give rise to tax evasion – will have to report to the Belgian tax authorities. Belgium will record the tax information collected every three months in a centralised international database. This will make sure the relevant tax information is automatically exchanged internationally. The Member States concerned, including Belgium of course, will, therefore, be able to examine more quickly and easily, and with greater insight, the structures and optimizations in the context of tax avoidance and tax evasion.
All this should come into effect no later than mid-2020 and the first exchange of information will, therefore, take place before early 2021. Europe entrusts the Member States with providing for effective, proportionate and dissuasive sanctions for professionals who do not comply with the reporting requirements. The precise nature of these sanctions is not specified. It will be up to the Member States to decide, knowing that the sanctions must be “effective” In other words, they must be severe. And that brings us back to the beginning of this article, to the accountants and tax advisers. If some are wondering out loud how much more of these reporting obligations their profession can bear, all are lamenting with a sigh: “Being a tax adviser in 2020 won’t be a bed of roses!”