On December 6, 2012, the European Commission presented an Action Plan for a more effective EU response to tax evasion and avoidance. The plan sets forth a comprehensive list of measures to help Member States protect their tax bases and recapture billions of euros legitimately due.

On the same date, the Commission also adopted two Recommendations, to encourage Member States to take immediate and coordinated action on specific pressing problems.

The first Recommendation envisages a strong EU stance against tax havens, going beyond the current international measures. The European Commission is encouraging Member States to identify tax havens and place them on national blacklists. Specified measures to persuade these non-EU countries to apply EU governance standards are also set out.

The second Recommendation is on “Aggressive Tax Planning”. It suggests ways to address legal technicalities and loopholes which some companies exploit to avoid paying their fair share. The European Commission urges Member States to reinforce their Double Tax Conventions, to prevent them from resulting in no taxation at all. Member States should also adopt a common General Anti-Abuse Rule, under which they could ignore any artificial arrangement carried out for tax avoidance purposes and tax instead on the basis of actual economic substance.

Other initiatives foreseen in the Action Plan include a Taxpayers’ Code, an EU Tax Identification Number, a review of the anti-abuse provisions in key EU Directives, and common guidelines to trace money flows.

Member States are also encouraged to reinvigorate the work of the EU Code of Conduct on business taxation. If solutions are not agreed and implemented in a timely and effective way, the Commission announces that it will, where appropriate, come forward with legislative proposals for action. It is also recommended that the Code of Conduct is extended in scope to include special tax regimes for wealthy individuals.

The Action Plan was announced in a Communication adopted by the Commission on June 27, 2012, which was setting out key challenges posed by tax fraud and evasion, and concrete measures to address them.

It is worth mentioning that the Recommendations are non-binding. However, the Commission is expected to publish a report on the application of its Recommendations within three years. Therefore, we suggest taxpayers to carefully monitor any possible development on domestic and EU level in this regard.

Should you require any assistance or clarification on the above, please do not hesitate to contact us.