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The Effect of the 5th AML Directive on Tax Practitioners - Shanice Finch

10 Feb 2020 13:42 | Anonymous
The Accountant – What's Next?  –  Winter 2020 (MIA Publication)
January 2020 marked the transposition of the 5th AML Directive (Anti-money Laundering Directive). After the implementation of the 4th AML Directive, the European Union faced new challenges mostly due to the innovative trading methods such as virtual currencies and the increase in off-shore accounting for tax avoidance. Furthermore, the need to respond to the public concern with respect to terrorist financing and lack of transparency on beneficial ownership, including trusts, was recognised.
Tax practitioners are faced with the increased need of transparency in customer`s trading and business operations. Upon the implementation of the 4th AML Directive, it was clear that the AML Directive was applicable to auditors, accountants and tax advisors. Then again, it was unclear if that directive was applicable and obligatory to be adhered to, by uncertified entities offering tax advice.
The 5th Directive, clarifies that it is applicable to anyone offering assistance, aid or advice on any tax matters as part of their professional and principal business activity. This important clarification was aimed to target any loopholes which could have been abused by uncertified tax advisors against certified tax advisors.
In line with Article 2 of this Directive expanding the applicability to both direct and indirect tax advisors, all Member States need to include the definition of `tax adviser` as provided in the AML Directive and reflect this definition in the national AML framework.
Financial Intelligence Units (FIUs) have reported to the European Union that they have been encountering difficulties in the process of exchange of information due to differences in national definitions of tax crimes. Unfortunately, these definitions are not defined or harmonised by European Union (EU) law. This lack of harmonisation cuts confidence of tax practitioners who report suspicion of tax crimes to the national FIU, and  the competent authority would not be able to get back accurate or reliable information.
Another targeted issue is the increased transparency of trusts and similar arrangements which are integrated through company structures, increasing hierarchy levels leading to the ultimate beneficial owner. The European Union has created a Central Platform through which the information of trusts ownership shall be publicly available to all interested parties including tax practitioners in the resident country of trustee within the Union. The enhanced scrutiny will aid auditors and tax practitioners to flag any misuse of legal entities and arrangements for the aim of tax avoidance. It has been established that it is necessary that information on beneficial ownership remains available for a minimum of five years after the registered, trust or legal entity has ceased to exist for referral purposes.
Tax practitioners are responsible to report any high risk individuals or legal structures which they deem as non-compliant or any suspicion of cross-border transposition of funds. The Union has given the Member States the responsibility to report any inaccurate or outdated information found on beneficial owners within the public registers. Also, the Member States are responsible to take necessary measures towards the individuals or legal entities which are found liable to inadequate or outdated due diligence information on beneficial owners. In this light, the Union has requested Member States to strengthen their relevant authorities’ anti-corruption unit and tax authority.
The competent authorities, including the tax authorities, shall have in place effective mechanisms allowing them to coordinate the development and implementation of policies to combat money laundering and terrorist financing. Adequate training shall also be provided on the implemented safe-guarding policies tax practitioners are expected to follow and on the process of reporting suspicions transactions.
The Regulatory European Union Board has also taken the responsibility of an integrated system of analysing transactions and dealings with third countries with the aim to eliminate loopholes in the member state administration measures. Furthermore, Member States shall not restrict the exchange of information between competent authorities on requests involving tax matters. These newly implemented measures shall provide more reassurance that adequate customer due diligence has not just been performed upon client on-boarding, but that monitoring is ongoing..
The 5th AML Directive has pointed out that obliged entities and practitioners have only been reporting little to no suspicious transactions to the respective FIU. This may indicate that either suspicious transactions are not being correctly and timely detected, or the tax practitioners are lacking from their obligation to report these transactions.
In a nutshell, all certified and uncertified tax advisors giving tax advice as part of their professional activity are liable to follow the 5th AML Directive. Subsequently, should practitioners not follow, the competent authority is obliged to impose sanctions, fines or other necessary measures to non-compliant practitioners in order to protect the trading market. Practitioners are also responsible to keep an eye on the EU AML Blacklist as a central database including reported cross-border individuals.
 I’m not sure of the relation here – whether it should be an ‘and’ or ‘but’ etc.

Ms. Shanice Finch graduated with a bachelor’s in accountancy and Marketing and consequently successfully completed her master’s in accountancy at the University of Malta in 2017. Ms. Finch joined Erremme Business Advisors in 2013 works as a tax advisor on several local and international assignments. She is a member of the Malta Institute of Management and an AIA of the Malta Institute of Accountants. Ms. Finch is currently majoring in taxation by furthering her studies with the Chartered Institute of Taxation (CIOT), reading an Advanced Diploma in International Taxation. Ms. Finch showed interest in the Distributed Ledger Technology (DLT) inspiring her to specialise in the VAT implications and treatment of tokens received in exchange for investment in Initial Coin Offerings. Her analysis extends to Vat treatment throughout the EU, impacting cross-border transfers and redemption of rights tied to tokens.

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