The European Union (EU) has been working on plans to fight against tax avoidance strategies since the Panama Papers scandal in May, where leaked documents exposed how the rich and powerful use tax havens to hide their wealth.
Biggest Leak in History
The Panama Papers release was the largest document leak in panama papershistory, far larger than the U.S. military leaks posted to Wikileaks in 2010.
Comprising of 1.5 million documents, the leak reveals financial and attorney–client information for more than 214,488 offshore entities, released from one of the world’s most secretive companies, a Panamanian law firm called Mossack Fonseca.
Vera Jourova, the European justice commissioner, told the Financial Times:
“‘STRICTER TRANSPARENCY’ HAD BECOME A ‘PRIORITY’ IN THE WAKE OF THE PANAMA REVELATIONS.”
New EU Push to Include Bitcoin Exchanges
The current EU transparency rules for shell companies and trusts have many loopholes, which have often been criticized. The new drive seeks to close these gaps, especially those which allow for tax avoidance strategies.
Among the measures the EU proposes is an effor to end anonymous trading on bitcoin exchanges and other virtual currency platforms. They hope to achieve this by requiring operators to carry out more customer checks.
The EU has contemplated regulating bitcoin exchanges and cryptocurrency platforms for quite some time, with the European Central Bank and European Banking Authority conducting their own research on how to best deal with digital currencies.
Currently No EU Legislation on Bitcoin
In a briefing published in March on virtual currencies, the European Parliament admitted that while there is currently no EU legislation on virtual currencies, including bitcoin, they are not completely unregulated in Member States. “Patchworks of national legislation, compatible to a varying degree, exist in some Member States, while others have no legislation at all,” stated the report.
The report also noted that:
“THE EUROPEAN APPROACH TO REGULATING VIRTUAL CURRENCIES IS FUNDAMENTALLY DIFFERENT FROM THAT PREVAILING IN THE USA. WHILST IN THE FORMER, VIRTUAL CURRENCIES ARE CONSIDERED AS UNITS OF ACCOUNT, IN THE LATTER THEY ARE TREATED AS COMMODITIES AND ARE THEREFORE STRICTLY REGULATED.”
The ECB Recognizes the Use of Bitcoin
In a letter to a member of the European Parliament, ECB president Mario Draghi said that no virtual currency, including bitcoin, has so far been declared the official currency of a state. However, he confirmed that:
“VIRTUAL CURRENCIES CAN BE USED ONLY AS CONTRACTUAL MONEY, WHEN THERE IS AN AGREEMENT BETWEEN BUYER AND SELLER IN ORDER TO ACCEPT A GIVEN VIRTUAL CURRENCY AS A MEANS OF PAYMENT.”
Britain Used to Stand in the Way of the EU
Other measures include forcing trusts to publicly reveal their true owners. Currently, many trusts are excluded from being the national registers of beneficial ownership. These registers were created throughout the EU after its Anti-Money Laundering Directive was updated in December 2014.
In the past, the European Commission had left the tax treatment of trusts alone due in part to the intervention of UK Prime Minister David Cameron, who claimed in a 2013 debate that trusts help families manage their inheritance issues in Britain, so they should be exempt from some of the rules.
However, now that Britain has voted to exit the EU, Union regulators will have fewer reasons to leave trusts alone. The new proposals are already demonstrating how the EU is seeking to end this deal, adding regulation of bitcoin exchanges and cryptocurrency platforms in the mix.
Author: Kevin Helms
Images courtesy of GreenFreightEurope, BBC, Bloomberg