EU Cautioned on Plans to Regulate Tax Advisers

European Union plans to regulate tax advisers in an effort to clamp down on aggressive tax planning and tax avoidance could prove excessive, ineffective and trigger unfair competition, accountants and lawyers warn.

The caution comes after EU finance ministers moved Oct. 11 to authorize the European Commission to draw up a regulatory framework for tax advisers, including possible mandatory disclosure rules recommended in Action 12 of the Organization for Economic and Development (OECD)’s project to combat tax base erosion and profit shifting.

The commission is due launch a public consultation on the issue by the end of 2016 (196 TMIN, 10/11/16).

“Considering where we are today, this move is unnecessary,” said Chas Roy Chowdhury, the head of taxation at the London-based Association of Certified Chartered Accountants.

In a telephone interview with Bloomberg BNA, he said “considerable self-regulation in the field already” exists and has become very effective.

He cited the U.K.-based Professional Conduct in Relation to Taxation as an example of a strict, effective self-regulatory scheme that set up much lower hurdles for associations to take action against members for promoting tax avoidance schemes.

Changed Landscape
The London-based chartered accountant, who serves on a European Commission sponsored tax advisory group, also insisted a prescriptive approach wasn’t necessary because of the new BEPS framework being put in place in the EU via the Anti-Tax Avoidance Directive, mandatory tax ruling exchanges and country-by-country company profit and tax reports.

“Clearly the legal landscape has changed,” Roy Chowdhury said. “There is now a robust legal framework coming into place that companies and tax authorities as well as tax advisers will work within.”

However, European Taxation Commissioner Pierre Moscovici, speaking Oct. 11 to journalists at a Council of Economic and Financial Affairs meeting in Luxembourg, said stricter tax adviser regulation is necessary because “there are still gaps in the EU and international tax framework that need to be addressed to prevent cross-border tax abuse and illicit financial activity.”

Olivier Boutellis-Taft, director of the Federation of European Accountants, warned that a diverse legal landscape in the 28 EU member countries would make it particularly difficult for any EU-wide approach to regulate tax advisers.

Common guidelines for tax advisory services could help restore public trust, he said, but drafting such guidelines while ensuring a level playing field would be challenging due to the current diversity of service providers operating under different, and often very complex, national legal systems.

“It would be unfair and moreover ineffective to bring up rules that would only include certain providers of tax services and not others, certain jurisdictions and not others,” Boutellis-Taft told Bloomberg BNA in an Oct. 11 e-mail.

Tax Lawyers
Law firm Mossack Fonseca, which was exposed in the Panama Papers as the reference point for many banks to set up offshore shell companies in Panama and elsewhere, has become a commonly cited example of lawyer involvement in assisting with aggressive tax planning.

“We know that banks, law and accountancy firms who engage in illicit tax practices are quite inventive,” said Jeppe Kofod, a Danish member of the European Parliament and spokesman on tax issues for the Socialists and Democratic political group.

“European laws have to take this ingenuity into account. Advisory roles and tasks can and will simply be shifted towards tax lawyers if they are regulated less than more traditional tax advisers,” Kofod told Bloomberg BNA in a Oct. 10 interview.

Legal Clarity
Romain Pichot, a tax lawyer with the Paris-based law firm Cazals Manzo Pichot, insisted that much of the demand for regulating tax advisers stems from public outrage over low-tax rulings by EU national governments to multinational companies.

“Improving the regulation on tax experts would not be an answer to the Apple Inc. and Starbucks Corp. cases,” Pichot said in an interview with Bloomberg BNA Oct. 10.

He said the first step to increase efficiency against tax evasion and fraud would be to clarify “what is prohibited by the applicable laws in terms of transactions and in terms of tax lawyers’ involvement.”

The French attorney also emphasized that “the rules should be the same” for tax lawyers and tax advisers at accounting firms.

“Even if tax lawyers are more focused on transaction and litigation and less on advising and audit, we broadly do the same job. We are competitors and we face the same questions as to tax evasion,” said Pichot.