As if avoiding taxes were not enough, tax dodgers might soon escape the very rules designed to hold them accountable.

The Council of the EU’s legal service has advised EU countries to exclude tax avoidance and evasion leaks from the protections granted to whistleblowers, according to an internal document seen by POLITICO.

The European Commission in April put forward a legislative proposal to protect whistleblowers in the aftermath of scandals such as LuxLeaks or the Panama Papers that shed light on large-scale corporate and individual tax avoidance schemes.

It would grant protection to individuals reporting breaches of EU laws in a wide range of fields, from consumer protection to violation of corporate tax rules. The Council’s legal service says that’s a problem, citing legal concerns over the breadth of the proposed bill.

The proposal should be split into several different texts, it argues, because “multiple legal bases can only be justified in exceptional circumstances,” according to an opinion dated December 14 and seen by POLITICO.

That includes a standalone legislation for protecting whistleblowers leaking information on fiscal matters. “This policy field will … have to be taken out of the draft proposal through a splitting and treated in parallel,” the document reads, referring to taxation.

Such a standalone legislation would have very little chance of making it through the Council as it would require unanimity from EU countries.

“I cannot accept to see the level of ambition reduced, especially if this leads to exclude corporate tax from the scope of the directive, while it is one of the sectors where we need to protect those who speak for the common good,” Virginie Rozière, the Socialist lead negotiator for the European Parliament, told POLITICO.

When the Commission presented the legislation, it highlighted LuxLeaks and the Panama Papers, two of the most recent and high-profile corporate tax avoidance scandals revealed by whistleblowers.

Under the proposal, companies would have to set up safe channels for future reporting of illegal or reprehensible corporate behavior. The text also aimed at protecting whistleblowers from retaliation from their employer and exempting them from judicial liability.

“If we better protect whistleblowers, we can better detect and prevent harm to the public interest such as fraud, corruption, corporate tax avoidance or damage to people’s health and the environment,” Commission vice president Frans Timmermans said in April.

When drafting the directive, the Commission added tax issues in the scope with the approval of its legal service. The text also covers whistleblowing on public procurement, money laundering, financial services, product safety and state aid, relying on seventeen different existing legislations or treaties.  

The Parliament adopted its report on the proposal in November (its legal service also approved the use of several legal bases), but EU countries have yet to adopt their position.

The Council’s legal service recommendations were discussed Monday by national delegations in the Fundamental Rights, Citizens Rights and Free Movement of Persons (FREMP) working party.

Several EU countries held off taking a stand on the issue, saying they need to check with their capitals before stating an official position, three EU officials said.

The Austrian presidency of the Council said the work would continue under the Romanians, who will take over on January 1.

A standalone legislation covering breaches of tax rules would fall under the EU special procedure for fiscal issues, the Council’s legal service wrote. That would de facto exclude the European Parliament from the legislative process and require a unanimous adoption from member countries, as they have sole competence on taxation.

The text’s provisions referring to tax avoidance and evasion “provide for a special legislative procedure requiring unanimity in the Council and the consultation of the European Parliament,” the document reads.

A text focused only on protecting whistleblowers for corporate tax avoidance and evasion leaks is doomed to fail, several Parliament insiders said, because countries like Luxembourg would refuse to endorse it.

The next Council meeting is scheduled in January, under the Romanian presidency.

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