Not that after the “Panama Papers”, “Luxleaks” and “Paradise Papers“ yet another scandal would have been necessary to set the international fight against tax and financial crimes in motion. But, as it became known last week, one of the greatest tax robberies (“Cum-Ex”) in recent history revealed another so far unknown facet: the so-called “Phantom Shares“ or “Cum-Fake”. The deals are similar to those involving “Cum-Ex” shares; only that here investors were paid capital gain taxes on shares by the state, which de facto did not exist. Deutsche Bank was allegedly involved in these deals.

 

These deals also played a role in the presentation of the report by the Special Committee on financial crimes, tax evasion and tax avoidance (TAX3) and influenced the draft final report by the Committee, which was presented on 27th November 2018.

 

Better communication

Co-rapporteur Luděk Niedermayer (EPP) emphasised the progress made by the EU in respect of closing legal loopholes in case of money laundering, tax avoidance, tax evasion and aggressive tax planning. The tax authorities had been furnished with appropriate means and data to enable them to tackle such practices. However, these means and instruments would only work, if there was increased and better cooperation between the competent authorities of the Member States.

 

As noted by the second co-rapporteur Jeppe Kofod (S&D), a lack of cooperation was one of the reasons why “Cum-Ex” had been able to develop into a Europe-wide tax robbery. The tax authorities had been robbed of revenue, which was urgently needed for care and healthcare or education. Hence, the report would provide for the creation of focal points for financial crimes in all tax authorities of the Member States. Such focal points would make it easier for Member States to alert other Member States to cross-border financial crimes and to exchange information of their pursuit. Apart from that, the report provides for the centralisation of a money laundering supervisory as EU institution to enable the enactment of strict and harmonised laws and practices.

 

In addition, the report contains the clear request to effectively abolish the “Golden Visa” systems in the European Union; hence, the granting of citizenships in exchange for investments.

 

The European protection of “whistleblowers” shall also be expanded and ensure that these are not forced into silence by non-disclosure agreements.  The Greens and Liberals voiced the request for a European “FBI”; hence a financial market police with far-reaching rights to take drastic measures to be able to protect European taxpayers against raids such as “Cum-Ex”. Another demand was a better regulation of cryptocurrencies to prevent them from assisting money laundering.

 

After 26 Committee meetings, public hearings and workshops, as well as detailed discussions with the Commission, the submitted report by the TAX 3-Special Committee shall be voted on on 27th February 2019.

 

Joint motion for a resolution on “Cum-Ex” in the European Parliament

On 29th November 2018 the European Parliament adopted a motion for a resolution on the “Cum-Ex” affair. Among other, it urges the European Securities and Markets Authority and the European Banking Authority, to carry out investigations regards the trading systems of “Cum-Ex” shares. In doing so, it shall be possible to assess possible threats to the integrity of the financial markets. Parties that have been guilty of engaging in these trading practices shall be named and violations against possible national or Union law shall be identified. The consequence of this shall be suitable recommendations for reforms and measures against possible law breakers. The automatic exchange of information between the authorities shall also be strengthened. After the 2008 crisis, there had been increased cuts of financial and personal resources in tax administration. Hence, Member States were urged to furnish their tax authorities with appropriate personnel resources and to modernise to enable the improvement of supervision and the reduction of time spent an information gaps.

 

 

 

Further information:

AK EUROPA: Cum-Ex: The big swindle

AK EUROPA: Commission and Council in favour of stronger laws to intervene against money laundering and tax evasion

Special tax committee: Draftspersons publish first findings and recommendations

TAX 3: Draft Report on financial crimes, tax evasion and tax avoidance

Joint motion for a resolution: “Cum-Ex scandal: Financial crimes and loopholes in the current legal framework”