Financial services lobbyists request EU delay anti-avoidance measures
A consortium of financial services lobbyists has written to the European Commission calling for a delay to the implementation of anti-avoidance measures due to be rolled out on 01 July.1 As first reported in Law360,2 the letter – also sent to the OECD and to Finance Ministers in the EU and the UK – claims that due to the unfolding Covid-19 pandemic, businesses are unable to devote enough time to complete their preparations for the reporting required.
In a separate letter seen by TaxWatch, the European Banking Federation (EBF) requested a three-month postponement of the requirement to provide information on customer bank accounts to tax authorities.
The sixth version of the EU Directive on administrative cooperation, or DAC6, aims to provide the tax authorities of EU Member States and the UK with additional information to assist in closing tax loopholes. DAC6 requires EU and UK intermediaries to file information on “reportable cross-border arrangements” to their home tax authorities. One test of whether an arrangement must be reported is if its “main benefit” is to gain a tax advantage. The definition of what an intermediary includes is broad, and includes any individual or company who sells cross-border tax arrangements, i.e. accountants, tax advisers, lawyers, banks.34
The implementation of DAC6 has already been challenging. The way EU directives work is that they set out an objective, and give EU states a choice of how to achieve it.5 DAC6 was passed by the European Commission in June 2018, though individual member states were slow to implement the Directive as domestic legislation, with almost half of the EU member states missing the 31 December 2019 deadline to implement DAC6. However, should a member state fail to implement an EU Directive as domestic legislation, the Directive itself acts as a backstop – effectively meaning that regardless of action taken at a national level, businesses should have been aware that DAC6 would be coming into effect.
This is reflected by Big Four accountancy firms that have been recommending for over a year that affected institutions should begin their implementation efforts, even before member states have transported the EU Directive into local law.67 Despite the two years that relevant parties have had to prepare for DAC6, lobbyists are suggesting that as some people are off work due to having the coronavirus illness, or have childcare duties as a result of school closures, that the intermediaries affected by DAC6 will be unable to comply with the requirements.
The request asks for a postponement of reporting deadlines until 2021, with a review at the end of September 2020 to see if a further extension is required.
The EBF, one of the groups lobbying for a delay of DAC6, wrote separately last week to both the European Commission and the OECD, requesting a three month postponement of the deadline for information exchange under the Common Reporting Standard (CRS). This requirement, based on the US Foreign Account Tax Compliance Act, is a global initiative to combat tax evasion, and was implemented in the UK on 01 October 2018. The CRS is used to determine the personal financial information that must be shared regarding assets, income, and taxable amounts across international borders, and is reported annually. The added transparency on a global basis provided by the CRS should allow for enhanced enforcement actions, not only against tax evaders, but also against those involved in money laundering and terrorist financing.8
Again, the reason given was that workforces are struggling with technology constraints due to working from home. This request is more controversial, given the fact that the CRS has been in place for several years, and is global in its scope. The other nine signatories of the 20 April request have not put their names to this letter.
This is not the first time that interest groups have sought to use the coronavirus to delay tax measures. Earlier this month we reported on how TechUK, the industry group that represents Facebook and Google amongst others, had asked the UK government for a delay to the start of the Digital Services Tax, saying that companies will be unable to cope with the burden of extra compliance during the crisis. A similar campaign is being waged to defer the Indian digital tax.9
The coronavirus pandemic is undoubtedly having an effect on the ability of companies to conduct business. However, given the huge amount of resources required by governments fighting the impacts of the virus, is now really the time to delay measures designed to combat corporate tax avoidance, tax evasion, and money laundering?
The full letter requesting a delay to DAC6 can be found here – Request to European Commission to recommend/endorse the deferral of EU DAC6 reporting obligations
1The associations who signed the letter, dated 20 April 2020, are ACC, AFME, AIMA, EACB, EBF, EFAMA, EFSA, ESBG, Insurance Europe and Invest Europe.
2EU Should Suspend New Anti-Avoidance Rules, Lobbyists Say, Law360, 21 April 2020, https://www.law360.com/financial-services-uk/articles/1265736/eu-should-suspend-new-anti-avoidance-rules-lobbyists-say?about=financial-services-uk
3Council Directive 2018/822/EU of 25 May 2018, https://ec.europa.eu/taxation_customs/sites/taxation/files/dac-6-council-directive-2018_en.pdf
4DAC6: EU Mandatory Disclosure Regime, Deloitte, https://www2.deloitte.com/uk/en/pages/tax/articles/dac6-eu-mandatory-disclosure-regime.html
6EU Mandatory Disclosure Requirements – Update, KPMG, 08 February 2019, https://home.kpmg/xx/en/home/insights/2019/02/etf-394-eu-mandatory-disclosure-requirements-update.html
7DAC6: The clock is ticking… Less than 1 year until go-live, Deloitte, 02 July 2019, https://blogs.deloitte.ch/tax/2019/07/dac6-the-clock-is-ticking.html
8The OECD common reporting standard (CRS): FATCA is going global, Gibson Dunn, 11 June 2015, https://www.gibsondunn.com/wp-content/uploads/documents/publications/Schmid-Grunert-OECD-common-reporting-standard-BLM-02.2015.pdf
9Tech giants such as Google, Facebook seek to defer Indian digital tax – sources, Reuters, 31 March 2020, https://uk.reuters.com/article/uk-india-tax-digital/tech-giants-such-as-google-facebook-seek-to-defer-indian-digital-tax-sources-idUKKBN21I1XY