Brussels, 18 December 2017
1. EU agreement reached on the 5th Anti-Money Laundering Directive
The Council of EU and the European Parliament reached a political agreement on 15 December on the EU Commission's proposal to amend the Fourth Anti-Money Laundering Directive. The amended directive (‘5th AMLD’) seeks to prevent large scale concealment of funds and to introduce increased corporate transparency rules, whereby corporate and other legal entities will be required by law to publicly disclose information on the beneficial ownership.
- Transparency requirements for corporate entities and trusts
Under the new rules, member states shall be required to ensure compulsory public disclosure of certain information on beneficial owners in respect of companies and legal entities engaging in profit-making activities as per Article 54 TFEU. Conversely, public access requirements are not put in place in respect of trusts and other legal arrangements. The 5th AMLD recognises that trusts may also be set up for non-commercial purposes, such as charitable aims, use of family assets, and other purposes beneficial to the community/ general public. Considering that such arrangements do not qualify as business benefits, the essential data on trusts’ beneficial owners shall only be granted to persons holding a legitimate interest. Similarly, the 4th AMLD already grants competent authorities access to beneficial ownership of trusts and other legal arrangements, albeit in limited circumstances.
- Virtual currencies and verification
The 5th AMLD introduces a requirement for member states to verify beneficial ownership information submitted to their beneficial ownership registers as well as an extension of anti-money laundering legislation applicability to virtual currencies.
With respect to transactions involving third countries, the obliged entities shall apply enhanced customer due diligence measures set out in the directive. Member States will introduce such rules as a requirement for all transactions with natural persons or legal entities established in third countries identified as high-risk countries pursuant to Article 9 (2) of the Directive.
- Timeline and background
This directive stems from Commission’s Action Plan of July 2016 for strengthening the fight against money-laundering and terrorist financing, aiming to prevent illicit movement of funds or other assets and disrupting the sources of revenue. On 12 February 2016, the ECOFIN Council (EU finance ministers) called on the Commission to initiate amendments to the 4th AMLD in the second quarter of 2016 the latest. The informal ECOFIN Council also called for action in April 2016 to enhance the transparency of beneficial ownership registers, to clarify the registration requirements for trusts, to speed up the interconnection of national beneficial ownership registers, to promote automatic exchange of information on beneficial ownership, and to strengthen customer due diligence rules.
The EU’s current AML revised framework was adopted on 20 May 2015, consisting of the 4th AMLD and Regulation (EU) 2015/847 on information accompanying transfers of funds. The transposition deadline for the 4AMLD and the entry into force of Regulation (EU) 2015/847 was set for 26 June 2017. The EU’s supranational risk assessment was also published in June 2017. Following the political agreement between the co-legislators, EU member states will have until mid-2019 to implement the 5th AMLD into national legislation.
2. EU Commission opens State Aid investigation into IKEA’s tax arrangements in the Netherlands
EU Commission’s Directorate General for Competition has announced a fresh State aid investigation into IKEA’s tax arrangements in the Netherlands. The Commission is looking into IKEA’s franchising model, which allows all the revenue from IKEA franchise fees worldwide to be recorded in Inter IKEA Systems in the Netherlands. Commission’s preliminary inquiry indicates that two tax rulings, granted by the Netherlands tax administration in 2006 and 2011 respectively have unduly reduced Inter IKEA Systems' taxable profits in the Netherlands.
The Commission asserts that the Dutch entity’s profits were reduced by endorsing a method for calculation of the annual fees that further transfers vast amount of IKEA’s worldwide franchising fees to a Luxembourgish entity, I.I. Holding. I.I. Holding was part of a special tax scheme in Luxembourg (exempt holdings’ exemption for dividends), effectively relieving all profits from corporate taxation in Luxembourg. This regime was declared harmful tax measure within the meaning of the EU Code of Conduct on business taxation on the grounds that the exemption was not conditional upon the payment of a sufficient tax by the distributing company, and was subsequently phased out at the end of 2010 at Commission’s request. IKEA would not have payed tax in Luxembourg on this basis in any event.
In 2011, a second tax ruling was issued by the Netherlands, which endorsed a methodology for intellectual property acquisition pricing at the level of Inter IKEA Systems. The ruling further confirmed the interest tax treatment of an intercompany loan to the parent company in Liechtenstein, i.e. the interest deduction from IKEA’s taxable profits in the Netherlands. The Commission asserts that these interest payments were a profit shifting strategy where the vast majority of IKEA’s franchising income after 2011 was shifted to the Liechtenstein parent company.
On this basis, the Commission will now assess if the level of the annual licence fee payments reflect Inter IKEA Systems' contribution to the franchise business in an arm’s length scenario, and, whether the viability of the interest deductions from IKEA’s Dutch taxable base as endorsed by the Dutch tax rulings is compliant with the EU State aid rules. The Netherlands confirmed that they cooperate with the European Commission in respect of IKEA’s investigation.
3. European Parliament adopts ‘PANA’ inquiry final report
The European Parliament adopted the Committee of Inquiry into Money Laundering, Tax Avoidance and Evasion (‘PANA’) final report and recommendations to the Council and the Commission. The 211 recommendations were approved at Parliament’s plenary on 13 December in Strasbourg, by 492 votes to 50 with 136 abstentions. PANA recommendations include the formation of a Permanent Committee of Inquiry on taxation, modelled on basis of the US Congress committees during the next Parliament (2019 -2024). In the meantime, a Special Committee to follow up on the recommendations would continue the investigative work through the mandate of this Parliament, until May 2019. The PANA Committee of Inquiry held the last session on the Paradise Papers before its mandate expired on 8 December 2017, followed by an address from Commissioner Moscovici who provided a round-up on the EU anti-tax avoidance initiatives.
The final recommendations include unrestricted public access to beneficial ownership registers and stricter regulation, sanctions for tax intermediaries aiding aggressive tax planning, then better regulation for protection of whistleblowers and a common international definition of what constitutes tax haven, offshore financial centre, non-cooperative tax jurisdiction and a high-risk country. MEPs called for more transparency in the Code of Conduct Group on business taxation and radical overhaul of its governance and modus operandi. The European Parliament also supported shift from unanimity to qualified majority voting in Council regarding taxation.
4. OECD releases further BEPS peer-reviews on dispute resolution
The OECD has released the OECD second round of analyses of individual country efforts to improve dispute resolution mechanisms. These seven peer review reports come as a second round of initial evaluations of how countries are implementing the minimum standards agreed under BEPS Action 14.
These seven reports include over 170 recommendations relating to the minimum standard. In stage two of the peer review process, each jurisdiction’s efforts to address any shortcomings identified in its initial peer review report will be monitored. The reports relate to implementation by Austria, France (also available in French), Germany, Italy, Liechtenstein, Luxembourg (also available in French) and Sweden.
5. VAT Forum in Prague on 26 January
CFE’s member organisation the Chamber of Tax Advisers of the Czech Republic is organising a VAT Forum on the 26 January 2018 in Prague. The VAT Forum is an excellent opportunity for practitioners and policy-makers alike to discuss the impact of new EU VAT regime with keynote speakers Luděk Niedermayer, Member of the European Parliament and Maria-Elena Scoppio of the European Commission.