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On December 13, 2017, the European Parliament voted in plenary session on the Recommendation adopted by the PANA Committee on October 18, 2017 following the inquiry into money laundering, tax avoidance and tax evasion. The Final Recommendation, which was adopted by 492 votes to 50, with 136 abstentions, includes recommendations to the European Commission and the Member States on how to tackle the harmful practices exposed by the Panama Papers revelations, as well as on how to properly enforce existing legislation in this respect. The document also deplores the fact that (some) EU Member States have failed to fight money laundering and tax evasion and insists the EU should take the lead on this issue at global level. 

The PANA Committee is a committee of inquiry that was established by the European Parliament on June 8, 2016 in the wake of the release of the Panama Papers, to investigate alleged contraventions and maladministration in the application of EU law in relation to money laundering, tax avoidance and tax evasion. The PANA Committee’s 18-month mandate came to an end on December 8, 2017 following the publication on October 18, 2017 of its Final Inquiry Report (PDF 1.73 MB) and Draft Recommendation.

The report, which closely ties in with the work done previously by the TAXE 1 and TAXE 2 committees (see ETF 294) concludes that some EU Member States have failed to fight money laundering and tax evasion and includes general recommendations, as well as more detailed suggestions on (1) tax evasion and tax avoidance, (2) money laundering and (3) intermediaries. However, only the recommendations to the Council and the European Commission were voted on by the European Parliament as a whole.

The final document contains 206 recommendations to the EU institutions and the Member States including:

• Reaching agreement on the existing proposals for a Common Consolidated Corporate Tax base (CCCTB), public country-by-country reporting (CBCR), as well as a mandatory disclosure obligation for intermediaries, and issue legislative proposals to enhance tax cooperation between EU Member States in tax matters;
• Implementing mandatory, standardized, public EU wide registers on businesses, beneficial owners, and land owners;
• Introducing a regulatory framework for tax intermediaries (such as lawyers and accountants), including the separation of audit, tax and advisory services, as well as defining effective sanctions in the case of involvement in illegal tax and money laundering schemes;
• Providing a common definition at EU level of a certain number of concepts, such as tax haven, secrecy haven, non-cooperative tax jurisdiction and high-risk country, as well as guidelines on illegal vs. legal tax planning activities to improve legal certainty;Implementing effective protection measures for whistle-blowers.

The EU blacklist of non-cooperative jurisdictions recently adopted by the Council (see ETF 345) was also heavily debated and an amendment to the Recommendation which suggested that Malta, Netherlands, Ireland, and Luxembourg be blacklisted alongside the 17 jurisdictions currently considered as non-cooperative was rejected. A statement was nevertheless included in the final text, expressing the European Parliament’s regrets that the EU blacklist focuses solely on jurisdictions outside the EU and emphasizing that, based on a simulation carried out by Non-Governmental Organizations (NGO), at least four Member States should be included. The Members of the European Parliament (MEPs) also reiterated their call for a robust review of the commitments taken by the 47 grey-listed jurisdictions and the implementation of effective sanctions. 

On the contrary, a number of recommendations initially included in the draft were finally removed, amongst which:

• The implementation of a minimum effective corporate tax rate within the EU;
• The implementation of an EU wide withholding tax on interest, dividends and royalty payments to low tax jurisdictions;
• The introduction of an obligation for auditors to rotate every seven years.

With respect to the functioning of the various EU institutions, the MEPs issued recommendations to:

• Improve the transparency and accountability of the Council, and of the Code of Conduct Group in particular;
• Ensure effective and consistent enforcement of the existing EU legislation and open infringement procedure against certain Member States for non-compliance;
• Change from a unanimity to a qualified majority rule for the decision-making process on tax matters.

The Final Recommendation adopted by the European Parliament in plenary will now be passed on to the Council and to the European Commission, although they are not binding to the Member States or EU institutions. 

In this respect, Commissioner Moscovici commented on a number of recommendations, during the plenary debate held on the report on December 12, 2017. He particularly highlighted the work of the European Commission in the fields of automatic exchange of information, administrative cooperation, public CBCR, CCCTB, and taxation of the digital economy. With respect to the Commission’s proposal on tax intermediaries, he reiterated his call for adoption within six months and hinted that the European Commission will investigate the possibility of applying Article 116 of the Treaty on the Functioning of the European Union (TFEU) to reassess the use of the unanimity rule in certain decision-making processes on tax matters.

As a follow-up to the work done by the PANA Committee, the European Parliament will also consider the possibility of setting up another temporary inquiry committee to look into the Paradise papers. The report also calls for the creation of a permanent standing committee to investigate wrongdoing in the field of taxation, after the European elections in 2019.

The work of the PANA inquiry committee should be seen as a follow-up to the recommendations issued by the TAXE Committee in November 2015 and TAXE 2 Committee in July 2016, to make corporate taxation fairer and clearer and to tackle tax evasion and aggressive tax planning. Although most of the proposed recommendations have already been considered before, this report is yet another indication of the increasing pressure the European Parliament is putting on other European institutions with respect to countering aggressive tax planning and promoting tax transparency. 

Should you have any queries, please do not hesitate to contact KPMG’s EU Tax Centre (maito:kpmgeutaxcentre), or, as appropriate, your local KPMG tax advisor.