REPORT on lessons learnt from the Pandora Papers and other revelations

MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION

on lessons learnt from the Pandora Papers and other revelations

(2022/2080(INI))

The European Parliament,

– having regard to the European Court of Auditors special report of 26 January 2021 entitled ‘Exchanging tax information in the EU: solid foundation, cracks in the implementation’,

– having regard to the European Court of Auditors’ annual report of 27 October 2022 entitled ‘Annual report on EU agencies for the financial year 2021’,

– having regard to the decision of the European Ombudsman of 16 May 2022 on how the European Commission manages ‘revolving doors’ moves of its staff members (case OI/1/2021/KR),

– having regard to its resolution of 9 March 2022 with proposals to the Commission on citizenship and residence by investment schemes[1],

– having regard to the European Court of Auditors special report of 28 June 2021 entitled ‘EU efforts to fight money laundering in the banking sector are fragmented and implementation is insufficient’,

– having regard to its resolution of 10 July 2020 entitled ‘A comprehensive Union policy on preventing money laundering and terrorist financing – the Commission’s Action Plan and other recent developments’[2],

– having regard to its resolution of 21 January 2021 on reforming the EU list of tax havens[3],

– having regard to its resolution of 16 September 2021 on the implementation of the EU requirements for exchange of tax information: progress, lessons learnt and obstacles to overcome[4],

– having regard to its resolution of 7 October 2021 on reforming the EU policy on harmful tax practices (including the reform of the Code of Conduct Group)[5],

– having regard to its resolution of 21 October 2021 on the Pandora Papers: implications for the efforts to combat money laundering, tax evasion and tax avoidance[6],

– having regard to its resolution of 16 January 2020 on institutions and bodies of the Economic and Monetary Union: preventing post-public employment conflicts of interest[7],

– having regard to Rule 54 of its Rules of Procedure,

– having regard to the opinions of the Committee on Development and the Committee on Civil Liberties, Justice and Home Affairs,

– having regard to the report of the Committee on Economic and Monetary Affairs (A9-0095/2023),

A. whereas the Pandora Papers were a massive data leak, which the International Consortium of Investigative Journalists began publishing on 3 October 2021, documenting the beneficial owners of corporate entities established in secrecy jurisdictions;

B. whereas 2.94 terabytes of data were leaked to the International Consortium of Investigative Journalists (ICIJ) and shared with media partners around the world; whereas some of the files date back to the 1970s, but most of those reviewed by the ICIJ were created between 1996 and 2020; whereas the new data leak reportedly concerns more than 330 political figures and public officials from almost 100 countries, including 35 current or former heads of state or government;

C. whereas the Pandora Papers revealed how high-net-worth individuals, including politically exposed persons, criminals, public officials and celebrities, are assisted by intermediaries, such as banks, accountants and law firms, in designing complex corporate structures registered in secrecy jurisdictions or tax havens in close cooperation with offshore professional service providers in order to shield income and assets from taxation, sanctions and other legal obligations and to enable money laundering and terrorist financing;

D. whereas, regrettably, a number of high-level EU decision-makers also featured in the Pandora Papers;

E. whereas the activities revealed in the Pandora Papers include the misuse of shell companies, foundations and trusts for the following purposes: anonymously buying property and luxury goods, and making investments and transferring money between bank accounts for illegal purposes, tax avoidance and committing financial crimes, including money laundering and terrorism financing;

F. whereas the Pandora Papers are the latest major data leak to expose the inner workings of the offshore financial world, following on from the Lux Leaks in 2014, the Swiss Leaks in 2015, the Panama Papers in 2016, the Paradise Papers in 2017, the Mauritius Leaks in 2019, the Luanda Leaks and the FinCEN Files in 2020, and the Lux Letters in 2021;

G. whereas, according to research[8], the amount of financial wealth held in tax heavens in 2017 was EUR 7 900 billion; whereas this amount is equivalent to 8 % of the world’s gross domestic product; whereas, as a result, there is a loss of tax revenue of around EUR 155 billion per year worldwide;

H. whereas the Panama Papers and Swiss Leaks revelations suggest that the wealthiest 0.01 % of people own about 50 % of their wealth in tax havens, while they are evading about 25 % of their tax liability by concealing assets and investment income abroad, making tax evasion also an issue of inequality[9];

I. whereas the practices described in the Pandora Papers further entrench social and economic inequalities in our societies and strongly erode citizens’ trust in the rule of law and in our economic and democratic system; whereas fostering social and economic justice is ever more important in the crisis currently faced by the EU due to the war of aggression against Ukraine and the cost of living crisis that has ensued;

J. whereas tax crimes are a predicate offence for money laundering under EU law and international standards; whereas the activities reported in the Pandora Papers are not all illicit or criminal, but may amount to tax avoidance and abuse of corporate secrecy;

K. whereas the parties to the Addis Ababa Action Agenda, the outcome document of the Third International Conference on Financing for Development, committed to enhance revenue administration through modernised, progressive tax systems and more efficient tax collection, as well as to scale up international tax cooperation;

L. whereas corporate income tax represents a higher share of tax revenues and gross domestic product in developing countries than in rich countries[10]; whereas losses due to global corporate taxation in developing countries are estimated to range from 6 to 13 % of total tax revenue, compared with 2 to 3 % in member countries of the Organisation for Economic Co-operation and Development (OECD)[11];

M. whereas in October 2021, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting agreed on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy; whereas, however, some developing countries expressed concerns about this global corporate tax deal, or even refused to endorse it (for example, Kenya and Nigeria);

N. whereas according to the ‘Tax Transparency in Africa 2022: Africa Initiative Progress Report’, illicit financial flows (IFFs) are estimated to amount to USD 50-80 billion (EUR 48-77 billion) annually for the continent;

O. whereas in 2019, the Africa Group at the United Nations called for a UN convention on tax as an important tool for tackling IFFs; whereas in February 2021, the High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (the FACTI Panel) also included a proposal for a UN tax convention as a key recommendation in its final report;

P. whereas the Commission and the Council have not fully followed up on Parliament’s recommendations following the Pandora Papers in its resolution of 21 October 2021 on the Pandora Papers: implications for the efforts to combat money laundering, tax evasion and tax avoidance;

Q. whereas few European legislative initiatives have been launched for tackling harmful tax practices that attract high net-worth individuals or individuals with luxury assets;

R. whereas, despite a decade of tax scandals and legislative reforms in the EU, progress at global level to rein in corporate secrecy and offshore tax evasion and avoidance has been insufficient, as shown by the Pandora Papers; whereas the lack of transparency, including through international information-sharing, is a key underlying cause of tax-related illicit financial flows;

S. whereas the two-pillar solution agreed on in October 2021 by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting addresses the tax challenges arising from the digitalisation of the economy; whereas developing countries, including the African Tax Administration Forum, have criticised the solution for side-lining their interests and for not sufficiently addressing the specific loopholes that limit the taxation rights of African countries;

General considerations

1. Recognises that journalists and whistleblowers have an important role in investigating and exposing potential violations of tax law, as well as corruption, organised crime and money laundering; deems it necessary to further protect the confidentiality of the sources of investigative journalism, including whistleblowers; welcomes the fact that investigative journalists have uncovered a complex system of tax havens, shell corporations and offshore accounts whose beneficial owners are persons of high public interest;

2. Stresses the importance of defending the freedom of journalists to report on issues of public interest without facing the threat of costly legal action, including when they receive confidential, secret or restricted documents, datasets or other materials, regardless of their origin;

3. Welcomes the Commission proposal for a directive on protecting persons who engage in public participation from manifestly unfounded or abusive court proceedings[12], also known as the anti-SLAPP (strategic lawsuits against public participation) directive; recalls the enormous financial and psychological burdens that SLAPPs place on the work of journalists and media workers, which also have a chilling effect and lead to self-censorship; underlines that a strong EU anti-SLAPP directive must include clear provisions on early dismissal mechanisms and effective sanctions, including financial penalties, against initiators of SLAPPs; stresses that an effective anti-SLAPP framework cannot exist in the absence of coordinated complementary measures at national level; calls on the Member States to adopt anti-SLAPP legislation tackling domestic lawsuits against public participation;

4. Stresses that investigative journalists and media workers are often subject to intense financial pressure and encounter considerable difficulties in obtaining financial resources for projects investigating tax crime, corruption or organised crime; calls on the Commission to explore further ways to increase the funding available to the media sector, including by establishing a dedicated permanent fund for investigative journalism;

5. Highlights the many cases that have recently come to light in which spyware has been used to conduct surveillance on journalists in the EU and notes that these are extremely worrying;

6. Deplores the fact that journalists like Peter Rudolf de Vries, Daphne Caruana Galizia and Ján Kuciak were murdered in relation to their journalistic revelations; highlights the vulnerability to threats and attacks of independent journalists and media workers in the absence of a strong European legislative framework to protect them; welcomes Commission Recommendation (EU) 2021/1534 of 16 September 2021 on ensuring the protection, safety and empowerment of journalists and other media professionals in the European Union[13]; stresses, nevertheless, that this can only be considered a starting point and calls for urgent action on establishing binding measures to ensure the protection of journalists and media workers across the EU;

7. Notes that Switzerland revised its Federal Act on Banks and Savings Banks on banking secrecy in the framework of adopting the Common Reporting Standard (CRS) for exchanging information on financial accounts; regrets, however, that banking secrecy remain in place for information that does not fall under the CRS; is worried that banking secrecy rules in Switzerland still apply to jurisdictions that are not part of the CRS and to Swiss nationals, including Swiss journalists, which explains why Swiss journalists were not initially allowed to report on the Pandora Papers or be part of the investigative consortium; welcomes any future reform of Article 47 of Switzerland’s Federal Act on Banks and Savings Banks in order to safeguard proper freedom of the press;

8. Regrets the fact that 24 Member States failed to transpose and communicate the transposition of the Whistleblower Directive[14] within the deadline; welcomes the fact that the Commission has initiated infringement procedures against at least 19 Member States for their failure to transpose the directive; points out that the implementation and application of current rules is crucial; regrets the extended use of non-disclosure agreements for employees in the corporate sector without the provision of accurate legal advice; calls on the Member States that have not yet done so to transpose the directive into their national law as a matter of urgency; calls on the Commission to use all the tools at its disposal to address Member States’ failure to transpose this directive;

9. Looks forward to the Commission’s report, due to be published in December 2023, on the implementation of the 2019 EU Whistleblowers Directive; calls on the Commission to consult stakeholders, when appropriate, on how to improve the directive;

10. Emphasises the fact that illicit financial flows are a matter for global governance; urges the EU to show strong political will and determination against tax avoidance and evasion to protect the single market, in line with the principle of policy coherence for development and as enshrined in Article 208 of the Treaty on the Functioning of the European Union;

11. Emphasises the fact that the practices brought to light by the Pandora Papers revelations have an especially severe impact on the fiscal space and public expenditure, in particular in  developing countries, and undermine the rule of law and confidence in the global financial system for raising living standards in developing countries around the world; highlights the need to work in global international forums;

12. Highlights the international commitment to significantly reduce illicit financial flows by 2030, as set out in the Addis Ababa Action Agenda and the 2030 Agenda for Sustainable Development; notes that the use of existing official development funds for subsidising private investment can be associated with trade-offs in relation to their effectiveness in achieving the sustainable development goals;

13. Notes the several international initiatives on the automatic exchange of information for tax compliance purposes, as well as the OECD Common Reporting Standard for automatic reporting of information on the offshore financial accounts of non-residents to their jurisdiction of residence and the work of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration network, in which 19 EU Member States currently participate;

14. Stresses that tax transparency and the exchange of information are essential for stemming illicit financial flows and increasing the mobilisation of domestic resources, which is of particular importance for achieving the sustainable development goals and the African Union Agenda 2063, especially in the current context, which is marked by rising debt, the impact of the COVID-19 pandemic and the consequences of the war in Ukraine on African economies;

15. Calls for the EU to support developing countries in combating illicit financial flows and tax evasion by companies and multinationals, and to ensure that taxes are paid where real economic value and profits are created in order to stop base erosion and profit shifting;

16. Stresses that in 2019, the Africa Group at the United Nations called for a UN convention on tax to help tackle illicit financial flows; believes that a universal intergovernmental body under the auspices of the UN with a mandate to deal with all aspects of IFFs could help to include all developing countries in the decision-making process on tax matters and could be an effective tool for fighting tax avoidance, trade mis-invoicing, profit shifting and all forms of illegal commercial and fiscal activities at global level;

17. Calls for the EU to support the setting up of a UN framework convention on tax, with the aim of strengthening international cooperation and governance on tax and trade-related illicit financial flows; highlights the need to introduce transparent and inclusive decision-making where all countries can negotiate as equals;

18. Recalls that tax avoidance shifts the tax burden from larger businesses to smaller and medium-sized businesses, as well as to consumption through personal income tax and value-added tax, which is particularly problematic in least developed countries where small, medium-sized and micro enterprises and informal traders make up the bulk of economic activity and are more vulnerable to significantly reduced income and insecurity; recalls that massive financial losses for developing countries due to tax evasion is one of the main factors that seriously worsen the indebtedness of many of them;

19. Deplores the fact that a number of EU high-level decision-makers have been featured in the Pandora Papers and recent media investigations, involving allegations of illegally obtained property, interests in fossil fuel companies or assets in tax havens; points out, in addition, that the names in the Pandora Papers include political leaders in developing countries that heavily depend on aid from the European Union;

20. Considers that, due to the unanimity rule laid down in the Treaty on the Functioning of the European Union to adopt tax legislation in the EU, high-level decision-makers accused of wrongdoing may have significantly more leverage in either blocking legislation to counter tax evasion or avoidance or determining the effectiveness of its outcome;

21. Notes that government ministers and lawmakers have the fundamental duty to uphold the law to its fullest extent and act in line with the spirit of the law at all times; points out that failing to do so erodes public trust in government, the very fundament of a state; points out that family members of politically exposed persons may be involved in fraud and tax evasion cases and are therefore subject to anti-money laundering and anti-terrorist financing legislation;

22. Highlights the importance of safeguarding high standards of integrity, honesty and responsibility among public officials in the EU and in the Member States, as well as fostering, within that environment, an ethos of a sense of duty and personal honesty; recalls the obligation for Members of the European Parliament to disclose any ‘financial interests which might influence the performance of the Member’s duties’;

23. Calls on the Member States to ensure that they have measures and systems in place, with sufficient human and financial resources, requiring politically exposed persons to declare any relevant outside activities, employment, investments, assets and substantial gifts or benefits which may give rise to a conflict of interest with respect to their functions; highlights the importance of having systems in place for reporting and verifying this information and independently assessing conflicts of interest when they arise, as well as for providing dissuasive sanctions for failure to comply with disclosure obligations;

24. Takes note of Article 12 of Regulation No 31 (EEC)[15], which prohibits public officials in the EU from carrying out any action or behaviour which might reflect adversely upon their position;

Role of intermediaries in facilitating tax evasion and avoidance

25. Points out that, according to research carried out in 2018, the so-called Big Four major accountancy firms – PwC, EY, Deloitte and KPMG – accounted for 87 % of the global tax advisory market share[16]; highlights the risks that a de facto oligopoly may pose to the accountancy and advisory market itself and the influence that these firms can wield over tax regulations; calls on the Commission to carry out a study on the tax advisory market in order to have up-to-date information on the market share of the major accountancy firms;

26. Regrets the fact that, as exposed by the Pandora Papers[17], PwC, along with other major accountancy firms, had a central role in assisting Russian oligarchs with their investments in the West through their networks of offshore shell companies[18]; highlights that such networks may be hindering the application of EU sanctions on Russian individuals; regrets the absence of visible investigations into the intermediary sector in the EU following the publication of the Pandora Papers and the EU’s sanctions on Russian oligarchs; calls on the authorities in the Member States to investigate any wrongdoing by these firms;

27. Points out that, in view of Russia’s aggression against Ukraine and its hybrid actions against EU countries, investigations into the assets and investments of Russian oligarchs should be a top priority, as they are strategically important for the EU’s security;

28. Takes note that, according to research[19], global professional services firms (GPSFs) serve as ‘career hubs’, where 68 % of transfer pricing professionals in multinational corporations have worked in a GPSF before; calls on the Commission to provide information on revolving doors between GPSFs and the employment of tax authority officials in such firms; calls on the Member States to ensure the adoption of revolving doors regulations, including cooling-off periods, with regard to officials in tax administrations, with adequate enforcement mechanisms;

29. Is concerned about the recent departure of the former OECD tax director to the private sector; calls on the Member States and the Commission to put pressure on the OECD to uphold its own 2010 Recommendation Principles for Transparency and Integrity in Lobbying and introduce clear cooling-off periods and strict policies on revolving door situations; calls on the Member States also to uphold these standards on international organisations of which they are members, so as to avoid conflicts of interest and revolving doors;

30. Calls on the Commission and the Member States to further analyse and, where appropriate, address the potential conflicts of interest stemming from the provision of legal advice, tax advice and auditing services when advising both corporate clients and public authorities; reiterates its calls on the Commission to consider introducing measures to clearly separate accountancy firms from financial or tax service providers, as well as all advisory services, as a way of tackling conflicts of interest;

31. Highlights the current prohibition on auditors to provide advisory services, including tax advice[20], to public-interest entities; welcomes the recently announced division of activities of one of the Big Four major accounting firms into separate audit and advisory businesses, demonstrating that such separation is achievable[21];

32. Highlights the Court of Auditors’ report which concludes that the use of external consultants by the Commission ‘gave rise to potential risks of overdependence, competitive advantage, a concentration of suppliers and potential conflicts of interest’ and that the ‘Commission does not sufficiently monitor, manage or mitigate these risks at the corporate level’[22]; calls on the Commission to implement all the recommendations from the Court; calls on the Commission to duly assess any risks of conflicts of interest in the process of awarding contracts to private firms and ensure diversified sources of advice; highlights the importance of public authorities having in-house resources and expertise to carry out their functions;

33. Highlights the limitations of self-regulation of the non-financial intermediary sector; welcomes the fact that the Commission is preparing a new legislative proposal on regulating intermediaries through an act securing the activity framework of enablers in order to tackle the role of enablers involved in facilitating tax evasion and aggressive tax planning; urges the Commission to ensure that the framework includes robust enforcement against intermediaries creating and operating schemes which enable tax evasion and aggressive tax planning, as well as facilitating and contributing to the concealment of wealth and assets; in this context, urges the Commission to continue to improve information-sharing among Member State tax administrations and cooperation on the global stage; awaits the Commission proposal, which should be targeted and proportionate;

34. Highlights the Directive on Administrative Cooperation (DAC8) proposal from the Commission, which extends the automatic exchange of advance cross-border rulings in DAC6 to cover high-net-worth individuals; emphasises the importance of honest and fair cooperation between national tax authorities to make the system of exchange of information failproof;

35. Welcomes the fact that the Directive on Administrative Cooperation (DAC6) has already introduced a mandatory disclosure regime for certain cross-border tax arrangements; notes that more than a full year of reporting has been completed; calls on the Commission to analyse the depth and breadth of the reporting and identify possible shortcomings; calls on the Commission to keep the European Parliament informed about its findings;

36. Insists that tax avoidance only benefits the few; takes note of the OECD’s observation that base erosion and profit shifting (BEPS) affects all countries and that ‘developing countries’ higher reliance on corporate income tax means they suffer from BEPS disproportionately[23]’, fuelling domestic inequality;

Harmful practices in non-corporate tax regimes

37. Takes note of the fact that, as the Pandora Papers have exposed, schemes to shield the assets of high-net-worth individuals from state authorities through corporate offshore services have become highly sophisticated; notes that the revelations showed how wealthy individuals pay little to no taxes by changing their country of tax residency and reallocating capital across borders;

38. Draws attention to the impact of new technologies (e.g. crypto-assets) which create new challenges in the area of tax avoidance and money laundering and for which new, appropriate and targeted regulations may be needed;

39. Stresses that base erosion is facilitated by the fact that outbound dividends, royalties and interest across borders are not subject to withholding tax and that there are no common rules and procedures ensuring the effective taxation of intra-EU flows; recalls recent research showing vast differences between the Member States in their application of withholding taxes, with rates varying between 0 % and 35 %; points to the fact that rates applied to withholding tax in bilateral tax treaties are often lower than the standard rates; calls on the Commission and the Member States to coordinate a withholding tax framework that ensures that all dividends, interest and royalties are taxed at least once at an effective rate;

40. Points out that the dividend-stripping scandals known as ‘cum-ex’ and ‘cum-cum’ were two of the largest tax fraud scandals in EU history, which cost EU Member states EUR 140 billion; stresses that a harmonised EU withholding tax system would help prevent tax fraud, double taxation and double non-taxation; reiterates the need for a common withholding tax system;

41. Observes, in parallel, a trend for countries, including EU Member States, to adopt legal frameworks designed to attract high-net-worth individuals, foreign pensioners and highly skilled workers to invest or live in their territory, notably granting them generous tax benefits and exemptions which do not apply to nationals, in addition to offering golden visas and selling citizenship opportunities; points out that these kinds of opportunities may have benefited Russian oligarchs who have since had targeted sanctions imposed on them;

42. Reiterates its concerns that schemes granting nationality or residency on the basis of a financial investment, also known as ‘golden passports’, are objectionable from an ethical, legal and economic point of view and pose several serious security risks for Union citizens, such as risks stemming from money-laundering and corruption;

43. Urges the Commission to provide detailed information on the progress made by Member States in repealing or withdrawing the citizenship or residence permits of Russian or Belarusian individuals who have obtained their status through investment;

44. Is particularly concerned by the apparent short-term increase of USD 14 billion in cross-border deposits held in countries offering citizenship and residence through investment schemes, which suggests that these schemes are being used as regulatory arbitrage to circumvent the disclosure mandated under DAC6[24];

45. Notes that governments generally use two instruments to attract taxpayers and mobile tax bases for personal income and wealth taxation: (top) tax rates and preferential tax arrangements targeted at income- and wealth-rich foreigners;

46. Takes note of the increasing number of tax regimes in EU Member States which aim to attract foreign ‘digital nomads’, high-net-worth individuals or pensioners; notes that some tax regimes present significant potential for abuse, which erodes the tax bases of other countries; highlights that, according to research by the EU Tax Observatory[25], many Member States have specific tax regimes designed to attract foreign-earned income or wealth which, according to the researchers, pose varying degrees of harmfulness;

47. Notes that, according to the Tax Observatory, these kinds of preferential schemes generate a loss of revenue of over EUR 4.5 billion per year for the EU as a whole; regrets that some Member States are ending golden visa schemes while creating special tax regimes for foreign-earned income or wealth;

48. Is concerned that there is considerable scope for harmful competition in this field and widening social and economic inequalities, as tax-induced mobility is high among income - and wealth-rich taxpayers[26]- and non-mobile income earners end up paying proportionately higher taxes than mobile income earners;

49. Calls on the Commission, without prejudice to its powers under the Treaties, to assess the impact of these tax regimes on the single market and Member States’ revenues, as well as of all harmful tax practices distorting competition outside the area of corporate taxation in the EU;

50. Highlights the possible impact of teleworking on the allocation of personal income tax rights and tax residence in the EU; calls on the Commission to take the necessary legislative measures to ensure legal certainty and tax fairness for cross-border workers and self-employed persons in the EU in this regard; notes that personal income tax is the biggest source of tax revenue for most EU Member States;

51. Calls on the Commission and the Member States to take the lead in the OECD, and in particular in the OECD/G20 Inclusive Framework, in creating a level playing field in the taxation of capital gains and to limit harmful tax practices aimed at attracting foreign-earned income, wealth and assets;

52. Highlights that, given the single market and freedom of movement of capital within the EU, the disparity of capital gains taxation across the EU[27] may generate wealth shifting and tax avoidance across Member States; calls on the Commission to assess the feasibility and economic impact of a minimum tax on capital gains at European level;

53. Notes that real estate has been widely misused for money-laundering and tax-evasion purposes, as revealed by the Pandora Papers; notes, furthermore, that real estate taxation in the EU is not at all coordinated; notes with concern the sharp increase in real estate prices in the EU and the financialisation of housing; is concerned about the potentially distortive effect of regimes providing for low-tax real estate investment funds; calls on the Commission to assess the impact of a lack of coordination of real estate taxation in the EU, as well as the impact of low-tax regimes, on the financialisation of the housing sector; recalls the important role of national digital land registers in strengthening the fight against tax crime across the EU;

Misuse of shell companies and opaque structures and the fight against tax evasion and avoidance, particularly in jurisdictions that figure prominently in the Pandora Papers

54. Recalls that tax crime is recognised as a predicate offence of money laundering, which is often linked to organised crime, corruption and the financing of terrorism; stresses that the main challenge identified for the application of Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing[28] is the lack of direct applicability of the rules and the fragmentation resulting from diverging national approaches; welcomes the proposed anti-money laundering legislative package; stresses the importance of increasing the coordination between national legal frameworks to address loopholes and of improving supervision through the establishment of a European anti-money laundering authority with adequate resources and competences;

55. Notes that some jurisdictions, such as the United Kingdom, have in place a control mechanism for unexplained wealth aimed at detecting the proceeds of criminal activities; stresses that this mechanism consists of a court order requiring a person who is reasonably suspected of being involved in serious crime, or of being connected to a person involved in serious crime, to explain the nature and extent of their interest in a particular property and to explain how that property was obtained, where there are reasonable grounds to suspect that the respondent’s known lawfully obtained income would be insufficient to enable the respondent to obtain that property; invites the Commission to assess the effects and feasibility of such a measure at Union level in order to enable law enforcement agencies to better investigate the origin of ill-gotten assets and recover the proceeds of crime, while ensuring proportionality and the rights of defendants;

56. Notes the lack of transparency by the Commission and the Member States with regard to the progress made in freezing and seizing the assets of sanctioned persons; urges the Member States and the EU authorities to make a genuine effort to recover illicit money; calls on the Commission to publish a list of assets that have been frozen or confiscated following Russia’s invasion of Ukraine; welcomes the Commission’s 2022 proposal on asset recovery and confiscation;

57. Calls on the Commission to make full use of the revised methodology for identifying high-risk third countries under Directive (EU) 2015/849 and, after its own thorough assessment and where applicable, taking into account Financial Action Task Force (FATF) assessments, to place on the list of high-risk third countries, without hesitation, jurisdictions not named on the FATF lists;

58. Stresses the importance of strengthening tools for authorities to access information on ownership of specific high-value assets and thereby effectively curb efforts to circumvent targeted financial sanctions and fight money laundering and tax evasion and avoidance;

59. Notes that despite the implementation of European and national legislation on beneficial ownership transparency, as reported by non-governmental organisations[29], the quality of data in some EU public registers requires improvement; urges the Member States to dedicate the appropriate resources, including sufficient staff and technology, to process and make full use of the data; calls on the Commission to issue guidance or provide support to Member States and reporting entities to guarantee the quality of data in the registers;

60. Recalls the importance of transparency concerning beneficial ownership information (BOI) across the world; stresses that transparency concerning the ownership and control of companies, trusts and other legal entities is critical for combating illicit financial flows; notes that the Pandora Papers identified examples of individuals circumventing beneficial ownership transparency in Member States; regrets, however, the delay in the setting up of the Beneficial Ownership Registers Interconnection System in the EU due to technical difficulties; deplores the fact that delays in Member States and the overall lack of coordination in the implementation process are undermining the effectiveness of a functioning interconnection system and calls on all actors to address this delay as a matter of urgency; highlights that access to adequate, accurate and up-to-date BOI and checks on legal persons is a valuable tool in the fight against tax evasion and avoidance;

61. Welcomes the revision of Recommendation 24 by the Financial Action Task Force (FATF), which requires countries to prevent the misuse of legal persons for money laundering or terrorist financing; highlights that, henceforth, countries should require beneficial ownership information to be held by a public authority or body functioning as a beneficial ownership registry or an alternative efficient mechanism;

62. Stresses that progress in tackling the use of anonymous companies can only be possible if information about beneficial owners is easily made available in a timely manner in all jurisdictions and if authorities are able to make use of that information and cross-check data for investigative purposes;

63. Welcomes, further, the fact that the Financial Action Task Force is conducting a review of Recommendation 25 on the transparency and beneficial ownership information (BOI) of legal arrangements; considers, in this regard, that, similar to what is already provided for in EU law, this recommendation should determine that trusts or other similar legal arrangements be registered and that access to BOI on trusts be at least as comprehensive as currently determined by EU law;

64. Takes note of the CJEU ruling in joint cases C-37/20 and C-601/20 of 22 November 2022 regarding access to BOI by the general public as provided for under the 5th EU Anti-Money Laundering Directive, which the Court deemed invalid except for those who can claim a legitimate interest in accessing the information; calls on the Member States which removed access to beneficial ownership data for financial intelligence units (FIUs), competent authorities and obliged entities as a result of the ruling to reinstate it without delay;

65. Reiterates its conclusions regarding the fact that, as exposed by the Pandora Papers, some US states, such as South Dakota, Alaska, Wyoming, Delaware and Nevada, have become hubs of financial and corporate secrecy; regrets the lack of visible progress or political will in these states to enact the necessary reforms since the revelations;

66. Welcomes the adoption of the first final rule on beneficial ownership reporting under the US Corporate Transparency Act; regrets the lack of political will in the US to share information regarding the financial accounts of non-US citizens; reiterates its call on the US to join the OECD Common Reporting Standard as soon as possible and calls on the Commission and the Member States to enter into fresh negotiations with the US within the framework of the OECD in order to achieve total reciprocity within an agreed and strengthened CRS framework;

67. Recalls that the EU list of non-cooperative jurisdictions assesses whether a jurisdiction has at least a ‘largely compliant’ rating with the CRS according to the Global Forum on Transparency and Exchange of Information for Tax Purposes; calls on the Council to reassess the US in the framework of the EU list, with particular regard to the tax transparency criteria;

68. Calls on the US Congress to pass the bill for the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act (ENABLERS), which would require the non-financial and intermediary sector to carry out due diligence obligations on their customers, as recommended by Financial Action Task Force (FATF) standards;

69. Notes that shell companies may be misused for aggressive tax planning or tax evasion purposes; welcomes the Commission proposal for a Council directive laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU[30]; calls on the Council to swiftly adopt the proposal, taking into account the opinion of Parliament; underlines that establishing new transparency standards around the misuse of shell entities will help to make sure that their abuse can be more easily detected by tax authorities; calls on the Commission and the Member States to further promote global regulation on mandatory substance requirements for companies as a tool to prevent tax avoidance;

70. Notes with concern that the latest results of the peer review of the Global Forum on the legal implementation of the Standard for Automatic Exchange of Financial Account Information (CRS) and, for the first time, the results of the first reviews of the effectiveness of the practical implementation of CRS indicate that the framework put in place by several Member States needs to be improved in order to be fully consistent with the requirements[31]; calls on the Commission to take into consideration the results of the peer review in its monitoring of the implementation of the DAC Directives in the Member States;

71. Takes note of the Council agreement on broadening the scope of the Code of Conduct on Business Taxation; highlights that the revision of this Code of Conduct introduces the concept of ‘tax features of general application’ which are to be regarded as harmful if they lead to double non-taxation or the double or multiple use of tax benefits, as requested by Parliament; calls on the Code of Conduct Group on Business Taxation to make full use of its revised mandate;

72. Welcomes the fact that the EU’s listing of non-cooperative tax jurisdictions for tax purposes has enabled better legislation and tax practices in some developing countries through technical cooperation and political dialogue in order to address identified tax issues;

73. Deplores, however, the Council’s lack of willingness to agree on the forthcoming transparency criterion with regard to ultimate beneficial ownership, the concealment of which was a common feature in the schemes exposed by the Panama Papers and which was a key contributing factor to the continuation and success of such schemes;

74. Reiterates its call on the Council to expand the mandate of the Code of Conduct Group on Business Taxation to include preferential personal income and capital tax regimes, and personal income and wealth tax regimes that are considered harmful;

75. Recalls, in addition, Parliament’s resolutions on reforming the EU list of tax havens and on reforming the EU policy on harmful tax practices (including the reform of the Code of Conduct Group); calls on the Council to relaunch discussions on a comprehensive reform of the Code and to implement Parliament’s recommendations, in particular to address the fact that several individual Member States have more comprehensive blacklists than the EU as a whole, which indicates that more robust criteria could be applied at EU level;

76. Calls on the Council, in particular, to include the automatic listing of non-EU jurisdictions with a 0 % corporate tax rate or with no taxes on companies’ profits or individuals as a standalone criterion; notes with concern that non-EU countries may repeal non-compliant tax regimes but substitute them with new ones that are potentially harmful to the EU;

77. Regrets the lack of democratic accountability in the process of drawing up the ‘EU list of non-cooperative jurisdictions for tax purposes’; recalls that the Council seems sometimes to be guided by diplomatic or political motives rather than objective assessments when deciding to move countries from the ‘grey list’ to the ‘black list’ and vice-versa; stresses that this undermines the credibility, predictability and usefulness of the lists; calls for Parliament to be consulted in the preparation of the list and for an extensive revision of the screening criteria;

78. Stresses that the Pandora Papers are a further reminder of the need to make the EU list of non-cooperative jurisdictions more effective so that it not only serves as an instrument to help EU entities and authorities to identify risky entities and take precautionary measures, but also to actively encourage and cooperate with countries to make reforms to comply with international tax standards;

79. Stresses that, while listing needs to occur and defensive measures need to be applied without hesitation where appropriate, the EU needs to engage in more systemic, transparent cooperation and consultation procedures with developing countries that do not have appropriate tax practices before applying any coercive measures, especially with regard to ensuring that knowledge and capacity-building opportunities have been previously provided to the authorities of those countries;

80. Welcomes the OECD/G20 agreement of October 2021 on the reform of the international corporate tax rules; points out that Pillar II of the agreement, once implemented, will introduce a global minimum effective corporate tax rate of 15 % applicable to companies with a yearly revenue above EUR 750 million, which should help reduce the use of tax havens globally; highlights the importance of applying the 15 % effective tax rate as agreed in the OECD/G20 Inclusive Framework at EU level;

81. Recalls that the upcoming global corporate minimum tax will determine a fixed baseline for corporate taxation, thereby combating corporate tax avoidance; welcomes the progress made and encourages efforts to build on it; calls for the resulting fiscal capacities to be used to build more resilient, sustainable and equal societies; calls for international cooperation on the corporate minimum tax and the introduction of better transparency measures in order to facilitate the prosecution of tax evaders; stresses that multinational corporations should pay taxes in the countries where they conduct their economic activities and where value is created; considers that the distribution of taxing rights between countries must be fair, equitable and in line with the goal of reducing inequalities between countries; calls on the EU Member States to live up to this ambition and give their political backing to this global project;

82. Points out that several Member States have maintained preferential corporate tax systemswhich may have led to billions of losses in tax revenue for other Member States; calls for more transparency concerning preferential tax systems, as well as more tax solidarity among EU Member States; notes, moreover, that a few disproportionate inflows and outflows of foreign direct investment and passive income go through some Member States and that these flows reflect, at least partly, phantom investment, as concluded by IMF researchers[32], which may be intended to avoid taxation and possibly launder money;

83. Calls on the Commission to continue to monitor Member States which enable aggressive tax planning, report to the European Parliament on the issue and come forward with country-specific recommendations to fight aggressive tax planning and to exert pressure on those Member States to implement the reforms;

84. Insists that in order to carry out future legislative reforms of tax policy which are necessary to effectively address the issues highlighted in the Pandora Papers, the Commission should explore all possibilities offered by the Treaty on the Functioning of the European Union to make decision-making more efficient;

85. Stresses that while international cooperation is essential to put an end to tax avoidance and vital for achieving fair and effective domestic tax systems, Member States should be able to take unilateral measures to protect their tax base within the boundaries of their tax sovereignty and EU law, such as, in particular, imposing the non-deductibility or limited deductibility of costs (interests, royalties and services payments), adopting withholding measures, limiting the participation exemption or imposing special documentation requirements;

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86. Instructs its President to forward this resolution to the Member State governments and parliaments, the Council, the Commission, the US Congress, the Organisation for Economic Co-operation and Development and the Financial Action Task Force.