Cooperation between Tax Authorities. The Use of Anti-Money Laundering Data.

Last August the Italian Senate approved the European delegation law, currently under examination in the Chamber, through which Directive 2016/2258/EU amending the previous 2011/16/EU, introduces access by tax authorities to information, procedures, documents and workings for anti-money laundering purposes in order to allow the application and operation of all forms of administrative cooperation between tax authorities of EU Member States provided for in this Directive.

Following the implementation of Directive 2014/107/EU, the global standard for automatic exchange of finacial account information in tax matters within the EU is already in force since January 1, 2016 (2017 for Austria). As such, it ensures that information on account holders of financial accounts is reported to the Member State where the account holder is resident (CRS).

In addition, in accordance with the 2011/16/EU provision, the Directive foresees that where the account holder is an intermediary structure, the financial institutions shall look through that entity and identify and report its beneficial owners.

That important element in the application of the IV Anti-Money Laundering Directive involves a step relying entirely on information obtained for the identification of the beneficial owners, based on Directive 2015/849/EU.

In this context, in order to ensure effective control of the implementation of due diligence procedures by the financial institutions, it was introduced tax authorities’ access to all information collected for the purpose of anti-money laundering. Without this access, those authorities would not be able to monitor, audit and confirm that the financial institutions apply properly Directive 2011/16/EU and identify correctly and report the beneficial owners of intermediary structures.

By the end of this year, the European Union will see the full realization of the new regulatory framework, which will provide strategic tools to fight international tax evasion. The deadline for transposition is set for December 31, 2017. Specific obligations will be imposed on the intermediaries of the Member States in order to allow tax administrations to access the information and data gathered. In particular, customer due diligence, beneficial ownership of corporations, companies and trusts, as well as information about anti-money laundering obligations will be transmitted.

To this end, it will be essential for tax administrations to examine and consider cases individually in order to avoid unlawful and multiple verifications caused by a non-perfect regulatory alignment between the various countries, considering that tax discipline identifying the taxpayer at national level does not always correspond to the identification of the beneficial owner.

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Fishing Expeditions. Stop from the EU Court.

The Court of Justice of the European Union pronouncing itself on the “Berlioz Case”, that faced the Luxembourg Berlioz Investment Fund and the French Tax Administration, delivered an important ruling that sets clear limits on the exchange of tax information between Member States, defining the boundaries of the exchange on request distinguishing the applications that are considered lawful, as they are characterized by a “foreseeable relevance” for tax purposes, from those that are not allowed (the so-called “fishing expeditions”).

The courts of one Member State may review the legality of requests for tax information sent by another Member State in order to verify whether the information requested is not manifestly devoid of any “foreseeable relevance” with the tax investigation for the single taxpayer.

Some extracts from this recent sentence that decided about the Case C-682/15 (Berlioz Investment Fund SA vs “Directeur de l’administration des Contributions directes”)

“… Member States should exchange information concerning particular cases where requested by another Member State and should make the necessary enquiries to obtain such information. The standard of “foreseeable relevance” is intended to provide for exchange of information in tax matters to the widest possible extent and, at the same time, to clarify that Member States are not at liberty to engage in “fishing expeditions” or to request information that is unlikely to be relevant to the tax affairs of a given taxpayer…”

“… As a number of governments and the Commission argued, this concept of foreseeable relevance reflects that used in Article 26 of the OECD Model Tax Convention, both because of the similarity between the concepts used and given the reference to OECD conventions in the explanatory memorandum to the proposal for a Council Directive COM(2009) 29 final of 2 February 2009 on administrative cooperation in the field of taxation, which led to the adoption of Directive 2011/16. According to the commentary on that article adopted by the OECD Council on 17 July 2012, Contracting States are not at liberty ‘to engage in fishing expeditions’, nor to request information that is unlikely to be relevant to the tax affairs of a given taxpayer. On the contrary, there must be a reasonable possibility that the requested information will be relevant…”

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