The UK government must abide by radical new EU tax transparency reforms, both to continue the fight for tax justice and to secure the best possible post-Brexit deal, Labour MEPs have warned.
The European Parliament committees on economics and civil liberties today backed reforms to the EU’s Anti-Money Laundering Directive, in a vote that paves the way for an update to the laws governing beneficial ownership and tax transparency. The new proposals will bring trusts - legal constructs found to be at the heart of the ‘Panama Papers’ leaks - into the spotlight, by forcing their beneficial owners (a person who, directly or indirectly, holds or shares significant voting or investment power) to be listed on a public register alongside those of companies.
The proposed new public registers would allow anyone - from journalists to NGOs to individual citizens - to see who really owns companies and trusts. Such a measure would increase transparency and make it much harder for such vehicles to be used for money laundering, terrorist financing or tax evasion. Exemptions, however, are envisaged for certain vulnerable people, such as owners of trusts who are at severe risk of kidnapping or other threats.
The proposals now need to be debated with national governments in the European Council, and Labour MEPs are calling on the Conservative UK government to maintain the same high level of ambition in that debate as has been seen in the European Parliament vote today. Not only would this be the right thing to do in order to clamp down on harmful tax secrecy, it would also send a strong and clear message to other EU countries ahead of the upcoming Brexit negotiations: that the UK will seek to maintain high standards, and will not aim to undercut our neighbours in a harmful race to the bottom on tax. To do otherwise would risk retaliation from EU countries, deteriorating relationships on both sides and a final Brexit deal in which no one wins.
Anneliese Dodds MEP, Labour’s European Parliament spokesperson on taxation, said:
“Today we have sent an overwhelming message on the need to significantly increase transparency when it comes to ownership of companies and trusts. By bringing trusts into the scope of this legislation in particular, we can eliminate a loophole that we know has been used by tax evaders, money launderers and terrorist financers in the past.
“By allowing journalists, civil society and citizens to access these registers of beneficial ownership, we would shine some much-needed light on the murkiest areas of the financial world. Those who abide by the rules will have nothing to fear, and those who don’t will have nowhere to hide.
“The UK government must embrace these new reforms and abide by them, and most certainly must not seek to block them – not just because these changes will increase tax transparency, but also to show that the UK will continue to be a constructive and ambitious partner for the EU in the fight for tax justice, even after Brexit.”
The vote today also lowers the threshold at which an individual is deemed to be the ‘beneficial owner’ of a trust or company - from a 25 per cent stake down to 10%. This closes a loophole that allows individuals to avoid detection by issuing shares to friends, family or sham owners.
The report will now go to a vote of the whole European Parliament, followed by negotiations with national governments in the European Council, before becoming law.
Anneliese Dodds MEP added:
“This is a big step forward in the fight against tax avoidance and evasion. Now the pressure is on national EU governments to match this level of ambition within the European Council.
“We know that the British government has previously lobbied behind the scenes to water down these kind of rules - they now need to step up and show that they have heard the public outcry following the Panama Papers scandal, and that they will be every bit as ambitious as the European Parliament in the fight for tax justice.”