EU-Pressure on Offshore Financial CentresTax to Intensify

Unsatisfied with progress made at the global level using the OECD Global Forum benchmarks on transparency and tax information exchange, the European Commission (EC) plans to push for the development and implementation of international standards equivalent to the European Union (EU) rules.

This is one of three proposals in an EC paper to be released to EU members ahead of next week’s EU Summit to help member states tackle the interlocking bank, sovereign debt and growth crisis that threatens to unravel the eurozone.

Stepped Up Action Against Tax Havens

The EC posits that” in these difficult times we must ensure that taxes are efficiently and fairly collected” and to see that this happens Brussels wants national authorities to improve their tax collection levels and  their action against tax evasion in the coming months.

Indeed, if the EC gets its way by the end of the Summit more aggressive measures against non-EU tax havens; and greater EU ambition in the areas of global transparency, exchange of tax information and harmful tax competition will move closer to implementation.

EU Tax ID Number

To build trust and cooperation between tax administrators while tackling the cross-border issues associated with tax fraud and tax evasion, the EC has suggested the possibility of a European Tax Indentification Number .

According to the EC while domestic Tax Identification Numbers (TINs) work well in tracking the financial manoeuvres of EU citizens within national borders, when financial transactions occur in other member states the tax authorities have to rely on information exchange provided by their counterparts which is not based on  automaticity.

Moreover,the EC considers that the variants in the structure of national TINs makes the overall structure cumbersome and therefore difficult to uncover illegal practices.

Member State ‘Pushback’

The EC expects opposition from some EU members to their plans despite support shown by others who have referred to the estimated annual EUR 1trillion in ‘evaporating’ revenue because of tax evasion which finds its lifeblood in legislative loopholes and lack of internal EU cooperation and with third states.

For OFC who have failed to forge strategic alliances in the EU it is likely that, rather than admit defeat, the more aggressive regime proposed by the EC, if adopted, will first find application to these jurisdictions, perhaps through the dictates of the OECD Global Forum.

While for Europe’s non-EU tax havens like Switzerland with economic allies in the EU not keen to see any more strictures imposed on that country’s financial sector, the rules will likely never be fully applied.


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