Earlier this week, on 28 June 2021, the Act of 2 June 2021 providing for various financial provisions relating to the combat against fraud has entered into force (the “Act”).
According to the Parliamentary works, the Act aims at adjusting and broadening the FSMA and the NBB’s duty to report specific tax mechanisms (“specific mechanisms”) to judicial authorities, i.e. to the Public Prosecutor. This legislative initiative comes from recommendations issued by the Parliamentary Commissions dedicated to the Panama Papers and to the bankruptcy of the Optima Bank, which called for such broadening of the reporting duty of the supervisory bodies.
Prior to the adoption of the Act, the FSMA and the NBB were only obliged to report to judicial authorities "specific mechanisms" put in place by a company under their control when they held evidence that these "specific mechanisms" constituted a tax offence punishable by criminal penalties against these companies as perpetrator, co-perpetrator or accomplice.
This obligation to report to the judicial authorities could only be applied when the facts were likely to be subject to criminal prosecutions, i.e:
- either when the financial entity itself committed as perpetrator a criminal offence by infringing tax provisions (for example the failure to comply with the obligation to withhold withholding tax) ;
- or when the financial entity intervened as co-author or accomplice in the commission of a tax fraud committed by a third party.
As a result, in the absence of tax fraud committed by the client, the supervisory authorities had the power to injunct the company to put an end to this "specific mechanism" on the basis of the provisions governing the supervisory status of financial institutions, but they had no obligation to report it to the judicial authorities.
Content of the Act : explicit prohibition of specific tax mechanism and reporting obligations of the FSMA and NBB
The Act inserts legal provisions into each of the sectoral supervisory legislation of the financial entities which are supervised either by the FSMA or by the NBB, which expressly prohibit the setting up of "specific mechanisms".
Credit institutions, insurance companies, brokerage firms, payment and electronic money institutions, portfolio management and investment advisory companies, mutual funds, etc. were already subject to the prohibition to set up "specific mechanisms" before the entry into force of the Act. Indeed, the prohibition resulted at least implicitly from the competence of the supervisory authorities to put an end to a "specific mechanism".
The addition of provisions explicitly confirming that prohibition is therefore no revolution. The true novelty is that criminal sanctions are now attached to it.
In addition, the Act provides for a broadening of the reporting obligation of the FSMA and the NBB, which will not only be obliged to report cases where there is evidence of tax fraud by the companies under their supervision or by their clients, but also cases where the setting up of specific mechanisms noticed by the FSMA or the NBB could have the purpose of the effect to breach tax provisions, i.e. even in cases where no tax fraud has (yet) been committed.
The Act also defines the notion of “specific (tax) mechanisms” as mechanisms meeting four cumulative criteria : (i) they aim at enabling or facilitating tax fraud; (ii) they are the result either of an active behavior or of a gross negligence from the company; (iii) they are the result of repetitive behaviors / omissions, and (iv) they are “specific” in the sense that they deviate from the standard practice of financial institutions (e.g. money transfer from or to a foreign country which constitutes a normal banking operation but which becomes suspicious in case of use of internal technical transit accounts, in order to hide its true nature).
Circular CBF D1 97/9 of the former “Commission bancaire et financière / Commissie voor het bank-en financiewezen” already included a (non-exhaustive) list of some of the practices likely to fall into the scope of the notion of “specific mechanisms”. An updated list of such practices shall be drawn up by the NBB and the FSMA.
By providing an explicit prohibition of specific mechanisms and by attaching criminal sanctions to that prohibition, the Act is an additional example of the legislator relying on financial intermediaries to prevent tax evasion. Additional pressure is also brought by the broadening of the reporting duty of the FSMA and of the NBB, since it increases the risk of criminal prosecutions for financial institutions and their clients.
In the same way, it is worth noting that the Act modifies the law of 18 September 2017 on the prevention of money laundering and terrorist financing and on the restriction of the use of cash to impose that the intermediaries who fall within the scope of application of that law notifies to the Tax Administration any discrepancies they would note between the information displayed by the UBO register and the information they received from their clients in the framework of their KYC checks.