lobbying

Financial services lobbyists request EU delay anti-avoidance measures

23rd April 2020 by Alex Dunnagan

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.³ ⁴

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.⁶ ⁷ 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

Photo by Calvin Hanson on Unsplash

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

5A good explainer of how EU Directives work has been produced by Full Fact, How the EU works: EU law and the UK, Full Fact, 11 March 2016, https://fullfact.org/europe/eu-law-and-uk/

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

The coronavirus is not an excuse for tech giants to cash in on taxpayer generosity

14th April 2020 by George Turner

Throughout the coronavirus crisis, technology companies have played an important role in efforts to combat the disease. Google has been using its data to monitor movements amongst the population and test the effectiveness of lockdown measures. Amazon has partnered with the government to deliver Covid-19 testing kits.

But will all of this work come at a price?

In the UK, TechUK, the industry group that represents Facebook and Google as well as many others has asked for the government to delay the start of the Digital Services Tax. The Times reports today that the argument being deployed by TechUK is that recent changes to the tax have widened the scope of the tax, causing an unexpected compliance burden that companies can not meet during the crisis. Tax experts consulted by the paper, as well as our own research, have found no such changes to the UK legislation.

The Digital Services Tax is a new tax that has been imposed on the revenues of social media companies, search engines and online market places – Facebook, Google, and Amazon. The tax, which came into effect just a few days ago, places a 2% charge on revenues generated by these companies from UK customers. Although it is a new tax, it is in effect an anti-avoidance measure designed to counter some of the aggressive tax avoidance schemes used by these companies. It only applies to companies with global revenues of more than £750m, meaning that only the very largest companies are caught by it. There is a generous £25m tax free allowance built into the scheme.

The UK is not the only country to implement such a tax. According to the US Tax Foundation, 14 countries in Europe have either implemented or proposed a Digital Services Tax at rates ranging from 2%-7.5%.

The proliferation of Digital Services Taxes is a direct result of the failure of the OECD to agree on a comprehensive solution to the problem of tax avoidance by large multinational tech companies. A failure that has resulted in governments losing billions of pounds a year in tax revenues. In the UK we estimate that just five companies manage to avoid taxes of £1bn a year by shifting profits offshore.

Looked at in this context, the UK’s Digital Services Tax is a relatively modest measure, with the government estimating that it will collect around £400m a year from around 30 companies. Staggeringly, this estimate includes a 30% allowance for companies putting in place measures to avoid paying the tax. These figures are speculative, and the Office for Budget Responsibility say they come with a high degree of uncertainty.

At TaxWatch, using information published by the Treasury setting out how the tax operates, combined with our research estimating the revenues that large tech companies derive from UK customers, we estimate that a delay to the Digital Services Tax would benefit Google to the tune of £187m and Facebook £39m.

If implementation was delayed it would offset a significant chunk of the total amount companies are giving to governments to fight the coronavirus. The bill for Google is almost as much as the total amount of free ad credits Google has offered to the World Health Organisation and over 100 government agencies around the world ($250m (£203m)) as part of their response to the Coronavirus. A survey of what some tech companies have offered as part of the effort to fight coronavirus is set out here – http://13.40.187.124/tech_company_covid_donations/

Unfortunately, TechUK’s lobbying efforts appear not to be just the actions of one overzealous industry group in the UK. There appears to be a concerted effort by tech companies to use the coronavirus as an excuse to loosen regulations in a number of countries.

Reuters recently reported that in India, industry lobbyists representing the same companies are co-ordinating a similar campaign to defer the Indian version of the digital services tax.

Back in the United States, the New York Times reports how a number of tech companies have used the coronavirus to lobby against a range of government policies from labour laws to privacy protections.

Lobbyists may have thought the coronavirus outbreak an opportunity to realise long standing campaign aims, but they may have underestimated the reputational damage their clients could suffer if they are seen to be exploiting the crisis. The Times of London today ran a lead article heavily critical of the move from TechUK.

Government support mechanisms are supposed to be in place to help businesses in distress. Given that large tech companies are set to do relatively well out of the crisis, perhaps now is not the time for them to be looking for a hand-out. It is certainly not the time for governments to get rid of policies designed to combat tax avoidance by the tech industry.

We asked TechUK for a comment, they did not respond.

This research has been featured in The Times and The Telegraph.

Photo by Markus Spiske on Unsplash