Could father Christmas be breaching EU legislation?

23 December 2015

23 December 2015 by MHA MacIntyre Hudson

The mystery of Christmas is here, children have posted their letters to Santa and are hanging up their stockings. But this may be the last Noel before European bureaucrats bring Santa’s globetrotting delivery service down to earth by forcing unprecedented levels of transparency on his Yuletide activities. 

On 27 June 2015, a little noticed European directive, the 4th European Union Anti Money Laundering Directive was passed. EU states have two years to bring it into force.

And Santa may be in the frame because his work looks every bit like the kind of business where the European Union wants to shine a starry light.

A fundamental part of the directive are measures that intend to create greater transparency for companies and trusts. Trusts are often poorly understood but where one operates the trustees (the people in control) must manage its assets and pass on the benefits to beneficiaries.

Frequently, there is flexibility, allowing trustees to offer benefits to those who are deserving while holding back from those who have not behaved. Ring any jingle bells?

Yes, Santa’s Christmas gift giving may be caught not least because the regulations are broad and extend to arrangements that look like a trust.

Fortunately, since time immemorial Santa and his elves have diligently fulfilled duties that will now be enforced for trustees: he is bound amongst other things to maintain records of the beneficiaries and their status.

Perhaps, the well-known twice-checked list of the "naughty and nice" was simply early adoption by Santa, foreseeing this regulatory turn of events.

However, of concern is the possibility that not only will Santa be obliged to submit who is “naughty and nice” to a central registry but it will be a public document.

Such publicity brings with it a real incentive to make sure you’re not on the naughty list, but it might also amount to undue state interference into children’s behaviour.

At the very least, Santa’s weighty responsibilities will place further regulatory burdens on what is surely one of the greatest feats of international logistics at a time when austerity may preclude the use of additional elf resources.

The central registry may give rise to further difficulties for Santa: 

not only must details of the beneficiaries be provided but also the trustee’s details must be disclosed. The matter of Santa's true location, whether it be the North Pole, Greenland or Lapland could potentially become a matter of public record, once and for all.


The man in red faces challenges on other fronts too. Indeed, his Christmas eve exploits may eventually fall foul of international efforts to beat tax avoidance that could make last year’s 1,000-piece jigsaw of a snow storm seem like light relief.

Indeed, Santa’s cross-border activities could be caught up in the OECD’s arcane but significant Base Erosion and Profit Shifting Project (BEPS), which aims to tighten the reins on the movement of company profits from relatively high-tax jurisdictions to low-tax states.

The project may also reveal more about Santa than myth has so far disclosed. Transparency provisions in BEPS could force the disclosure of valuable intangible assets (i.e. the "naughty and nice" list already mentioned) but also where it is held, a declaration that once again might unveil his true location.

More importantly, Santa’s seasonal work see his reindeer transport him across frontiers to deliver his Christmas gifts, a clear indication that cross-border transactions are involved.

But with his official location shrouded in mystery Santa could be accused of operating from a “disguised” permanent establishment opening him up to an insistence, under BEPS, that he make tax filings in every jurisdiction in which he come to town, a prospect with as much appeal as a Boxing Day hangover.

And as the needles drop from Santa’s tree of yuletide jollity there are other Christmas warning bells a chiming.

Is Santa engaged in a transfer pricing sleigh ride? The multi-jurisdictional nature of his work may cause suspicion. And any tax authority worth its Figgy pudding would want to know that arm’s length pricing is taking place as part of cross-border transactions.

The arm’s length principle demands that transaction between related corporate bodies take place based on pricing established as if the entities were independent of each other.

But the BEPS action plan, its key target areas finalised this year between the OECD and the G20, could force Santa, once again, into further unprecedented levels of disclosure through country by country reporting of his affairs. An unappetising prospect during the inevitable post-Christmas slump.

Looks like Santa’s legal and accounting elves will be at their desks on Christmas day.

For further information, please contact Nigel MayTom Byng or your local MHA MacIntyre Hudson tax advisor.