Tax avoidance crackdown will have ‘chilling’ effect on recruiters
A Europe-wide crackdown on tax avoidance schemes is set to have a “chilling” effect on recruiters and intermediaries marketing such schemes.
The Guardian reported this week that the European Commission will publish proposals tomorrow to force financial intermediaries to automatically disclose any new cross-border tax schemes offered to clients.
According to a leaked version of the proposals, drawn up by the Commission and seen by the Guardian, those found to be designing and promoting aggressive avoidance structures will have five working days to file details with their local tax authority.
That time period starts as soon as the scheme has become available to a client. Where there are several intermediaries in the chain, one will be made to take responsibility for disclosure, while where all intermediaries in the chain are based outside European member states, the obligation to disclose will fall to the client, the paper added.
Commenting what all of this means for UK recruiters and intermediaries, employment lawyer Christopher Tutton, partner at Constantine Law, told Recruiter much will depend on how the UK exits the European Union. Talks on that process began yesterday.
“The effect of these measures would be to have a further chilling effect on the development and marketing of tax avoidance schemes by recruiters and intermediaries. The new rules create a central EU wide register of such schemes, exposing them to scrutiny from regulatory authorities across the bloc. The rules will also mandate a short timescale (five days) for such schemes to be disclosed.
“All this however is dependent on the terms of the UK’s exit from the EU. If we stay a member of the single market, as part of a soft Brexit, we will need to have implemented these rules. Should we come out of the single market as part of a hard Brexit, however, the rules would not apply.
“There has been much political commentary about the UK becoming a tax haven on the doorstep of the EU if there is a hard Brexit, and proposals such as these not being implemented would be a small taste of the more relaxed tax regime which may be in store.”
Dr Sybille Steiner, partner solicitor at law firm Irwin Mitchell, agrees that the implication of these rules in the UK rests on whether the country secures a hard or soft Brexit.
She told Recruiter: “It is suggested that the proposals will apply to schemes in which one entity is based in a European jurisdiction. If the final legislation takes the form of the leaked version, its applicability in the UK will be closely linked with whether a soft or hard Brexit is negotiated and, in particular, whether Britain will remain part of the single market.
“The obligations within the proposals appear to be placed on the financial intermediaries involved in offshore tax schemes and, failing that, the client benefitting from the scheme. While the use of such intermediaries is an attractive option for businesses such as recruitment agencies, all entities involved in tax schemes should ensure that the arrangement is legitimate and that they are fully aware of the relevant legal requirements. It will therefore be important for recruitment agencies to follow further communications from the European Commission and to keep up to date with the news on Brexit.”
