Offshores zones in the world are used for avoiding taxes. Tax burden in Bulgaria is low and the motive is often to hide owners. The argument that on account of the potential conflict of interest of the unknown owner, companies registered in offshore zones ought not to have economic dealings with the State and the municipalities has long been put forward.
After being voted in Parliament at the end of 2013 and lengthening the transitional term for companies, the law with the long name “Economic and Financial Relations with Companies Registered in Preferential Tax Regime Jurisdictions, the Persons Related to Them and Their Beneficial Owners” was enacted on 01.01.2015. Since the start of the year, offshore companies in our country have not been authorized to participate in privatization, to buy property in municipalities, to apply for public orders, to enter public-private partnerships, and a number of others.
This law comes on the backdrop of a growing momentum in the international movement on tax regulations, and in this sense it is a step in the right direction. Twenty eight bans on offshore companies are envisaged, including establishment of a bank, the participation in a sociological agency or sports club, for getting a license per the Renewable Energy Act, for concessions on ores and minerals, etc. But right after that, four exceptions in the text of the law smell of a selective approach and privileges for certain interests.
Exceptions are envisaged for offshore owners of printed periodicals, but not for owners of other media. Also for companies from countries, with which Bulgaria has agreement for avoiding double taxation (they are around sixty, including Cyprus and Luxemburg) and for companies, whose securities are traded at European stock exchanges.
There is a loophole for offshore companies with “unknown” owner from Bulgaria as well. However, if the law with the long name enters into force, significant interests will be affected, since in Bulgaria offshore firms are wont to make business with the State and the municipalities. The exposure will not appeal to owners and concessionaires at mines, summer and winter resorts, energy traders, subsidy users and a number of others.
European Union has become more active in order to reform the obsolete tax model – in EU as well as globally. In June European Commission declared an Action Plan for honest and effective corporate taxation. On July 8th, the European Parliament voted with a big majority a not compulsory text, which demands big companies from all sectors publicly to declare their profits and taxes in each country they operate in.
The mechanism “Country by country reporting” will hamper multinational companies from hiding their real income and participations in offshore zones and from avoiding taxes through transfer prices. The Council of Europe has not commented on this issue yet.
Staying behind the principle “Country by country reporting”, European Parliament sets high the standard at the International Conference on Financing for Development, which starts today June 13th and will last till July 16 in Ethiopian capital Addis Ababa. The main topic there will be the ways for attracting finance for achieving the new goals for sustainable development after 2015. The establishment of an international tax body at UN will be seeked, which to take up tax inequality between developed countries and global South, as well as with the fight against illegal money flows.
Current news on the results from the conference in Addis Ababa will be published in the blog taxdog.wordpress.com
One Fifth of the Investment in Bulgaria is Offshore
