Richard Cornelisse

Federal Ministry of Finance – Taxation – Fighting effectively against tax cheating, devious tax avoidance and money laundering

In Belastingontduiking, Indirect Tax Strategic Plan on 12/04/2016 at 8:44 pm

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In the past, it already became clear that gaps in the coordination of tax policies among countries were being comprehensively exploited, sometimes with criminal intent.

Significant progress has recently been made, both in the fight against international tax fraud as well as the fight against legal but unfair tax planning, partly due to a vigorous initiative by Germany.

Almost 100 countries have committed themselves to the new standard for the automatic exchange of financial account information that was agreed at the Berlin tax conference in October 2014.

As part of the BEPS project against aggressive tax planning by multinational corporations (a joint project of the G20 group of states that was largely initiated by Germany in 2013), 15 actions were adopted whose systematic implementation is now being monitored by the OECD.

The recent revelations about the legal practices involving letterbox companies in Panama over many years are further confirmation that it was right to strongly push for an agreement on international steps against tax fraud and unfair tax practices.

Current events have provided us with good reasons to take determined further steps along the path we have taken.

For this reason, the Federal Minister of Finance proposes the following measures:

  1. Panama must cooperate. Panama needs to join the system of automatic exchange of information as quickly as possible and additionally further develop its company law in such a way that companies that are inactive and lacking in substance, and their shareholders, can be identified. Shareholders or managers must be obliged to provide proof on a regular basis of the economic activities that their company performs. We require full transparency. The OECD criteria should be developed for the purposes of identifying companies that are inactive and lacking in substance. We need to be able to distinguish between harmless shell companies and so-called letterbox companies. If Panama does not swiftly cooperate, we will push for certain financial activities carried out in Panama to be scorned internationally.
  2. We need to harmonise the various national and international black lists. To this end, we need uniform criteria that take into account tax and money laundering aspects. Lead responsibility for this must be given to an international organisation like the OECD. The current coexistence of various lists in different regions and with different purposes hampers the effectiveness of such a system. We Europeans will take the lead by creating a joint list – with the ultimate goal of achieving a global solution.
  3. One hundred countries are not enough: We need to ensure that globally as many states and jurisdictions as possible implement the new standard for the automatic exchange of information on tax matters. To achieve this, the honest countries have to increase the pressure. We need to make sure that offering a haven for illicit earnings is no longer worth it.
  4. We need a monitoring mechanism for the automatic exchange of information. The OECD’s Global Forum should monitor the systematic implementation of the exchange of information and develop effective sanctions for states that are negligent or not cooperating. A corresponding statement by the OECD would then provide a legal basis for defensive measures on the national level. In addition, we must ensure that the new standard is applied not only to new accounts but also across the board to existing accounts.
  5. We need global registers of the beneficial owners of companies in order to make more transparent who is ultimately behind the corporate structures. At the same time, company law requirements should be designed in such a way that they make it possible to easily identify the beneficial owners. This kind of register has been agreed for the EU member states in the form of the EU’s fourth anti-money laundering directive. Germany will introduce this register in the near future. This only represents a first step towards a global solution, however. Here, too, it is essential that not only new companies but also existing companies are registered across the board.
  6. We need to systematically link the national registers with each other globally. This also includes swiftly developing a uniform standard for which information should be included in the respective national registers and how this information should be verified. In addition, tax authorities require access to this money laundering register, as is already planned in Germany, so that they can perform comparisons with the findings obtained via the international automatic exchange of information. The information in the register should also be available to relevant specialist non-governmental organisations and specialist journalists. In exchange, we expect these non-governmental organisations and journalists to also make the results of their research available to the competent authorities.
  7. It is not the task of the banks to promote aggressive tax avoidance. Services provided by banks aimed by supporting tax evasion by their clients are already subject to criminal sanctions today. The BEPS Action Plan provides for firms that offer tax-saving models to be subject to disclosure obligations. We will ensure that banks and consultants will no longer want to take the legal risks associated with offering, or acting as agents for, such models. It is already less and less lucrative today to conduct business in obvious grey areas.
  8. We need tougher administrative sanctions for companies. The effective criminal prosecution of misconduct often fails for lack of proof of personal liability. For this reason, the institutions themselves should be held responsible to a greater degree. As in the US, the sanctions imposed by the supervisory authorities should in the future play a greater role in Germany and Europe too. Companies in turn must obtain redress for such sanctions from the responsible parties to a greater degree.
  9. Tax evaders should not be able to escape sanctions through limitation periods. It is unacceptable that tax evaders can hope to escape punishment through limitation periods expiring by deliberately concealing foreign relations. We need to ensure, on the national and international level, that the limitation period only begins once a taxpayer has fulfilled the (existing and new) reporting obligations for foreign relations (“suspending” the beginning of the limitation period).
  10. We will further strengthen our anti-money laundering measures in Germany. In recent years, Germany has established strict rules and controls to combat money laundering in the financial sector. We also need such progress in the commercial sector, where the federal states (Länder) largely hold responsibility. The Financial Intelligence Unit, the central agency for reports of suspicions of money laundering, will be relocated from the Federal Criminal Police Office to German Customs and will be given new responsibilities and significantly more staff. We will also discuss with the Länder how we can more efficiently organise, within our federal system, the combating of money laundering in the commercial sector. We also require a legal initiative to enhance the skimming-off of profits from illegal transactions as well as introducing tougher sanctions and making it easier to freeze assets.

Many measures to combat tax evasion and money laundering can only be effective if countries cooperate on the global level. We need globally effective solutions.

In the pursuit of this goal, we have achieved more – partly due to German initiatives – in the past three years than in the previous 30 years.

For this reason, we will also present the additional steps outlined here for international coordination. Germany will do this in close coordination with its European partners and with the OECD.

 

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