EU & Tax Havens
January 6, 2018Posted by on
This week on Facebook: My Facebook Newsline in the year 2017 had more than its share of articles (often), memes (more often) and ‘shares’ (even more often) on the consequences of leaving the EU. I declared my ambivalence towards the EU a long time ago and didn’t vote in the Brexit referendum (nor in the consequential general election). I found the implied portrayal of the EU as a light unto the world as disingenuous a representation as that of the notionally democratic regime offered by Brexit.
The response to tax havens, in which The European Commission influenced the outcome of The Council of the European Union’s EU list of non-cooperative jurisdictions for tax purposes (pdf), is but another example of EU hypocrisy. Endowed with political mendacity, they introduced a very pro-European solution in favour of the disparate nation states that make up the EU and protected non compliant EU members.
In a scramble for economic growth that has now become more like a stampede, a kind of nation state pork barrel politics prevailed within the EU. That is: nation state’s self interest took precedence over a common fiscal policy within the EU while seeking to penalise the nation states existing outside of the EU, especially those that were included on the EU list of non-cooperative jurisdictions for tax purposes.
As the following articles point out, the EU nation states are complicit in tax evasion and a leader in what is described as nation states racing to bottom¹. In Europe the banking sector is required to publicly report its profits and tax on a country-by-country basis, leading to the Oxfam report on the EU’s use of tax havens².
An EU Discussion Paper was issued in July 2017 highlighting the part that EU banks play in tax havens³. This EU paper was issued before Pierre Moscovici, the EU finance commissioner, told reporters on 6 November 2017 (click here or image above) that governments needs to adopt a credible European tax haven list and before the Council of the European Union issued its list of non-cooperative jurisdictions on 5 December 2017.
Monday — EU attempts to divert attention from its own problems with tax haven ‘blacklist’: If EU governments really wanted to get rid of tax havens, they should be open about the fact that several EU Member States, such as Luxembourg, Ireland and the Netherlands, also have to fundamentally change their behaviour. Unless we put a stop to all tax havens, the problem is just going to move from one place to the other.
Tuesday — EU places 17 countries on tax-haven blacklist, but none of its own: EU finance ministers agreed on the final blacklist on Tuesday behind closed doors at a meeting in Brussels. The countries on the final blacklist face restrictions on EU funding or potential investments from the European Investment Bank. EU governments, meanwhile, can choose to impose their own sanctions against the blacklisted countries.
Wednesday — European countries leading zero corporate tax ‘race to the bottom’: Out of the 18 countries analysed, including EU countries and Norway, only five countries received the “green light”, while Belgium, Hungary, Ireland, Italy, Latvia, Luxembourg, the Netherlands, Spain and the UK were found to have harmful tax practices.
Thursday — The ‘who’s who’ of European tax havens: Europe is far from innocent in the international offshore tax evasion industry, as the Tax Justice Network (TJN) recently demonstrated. Many European countries, with their stable infrastructure and professional personnel, provide fertile ground for businesses or individuals to evade taxes.
Friday — These five countries are conduits for the world’s biggest tax havens: Published on July 24 in the academic journal Scientific Reports, the paper Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network shows that offshore finance is not the exclusive business of exotic, far-flung places such as the Cayman Islands and Bermuda. The Netherlands and the United Kingdom also play a crucial – although a heretofore obscure – role in the tax-avoidance game, acting as conduits for corporate profits as they make their way to tax havens.
¹Tax Games — The Race to the Bottom: This projection is based on the development between 1980 – when the average corporate tax rate was above 40 per cent — and 2015 – where it has dropped to less than 25 per cent. Europe is playing a leading role in this race, and currently seems to be accelerating the pace. An analysis of developments in the EU and Norway shows that 12 governments have either just carried out a new cut in the corporate tax rate, or are planning to do so over the next few years.
²Opening the vaults — the use of tax havens by Europe’s biggest banks (pdf): The world of tax havens is a murky place. In Europe, only one sector is required to publicly report its pro ts and tax on a country-by-country basis – the bank- ing sector, as a result of regulation following the nancial crisis. Since 2015 all banks based in the European Union have been obliged to report on their operations in this way.
³Banks in Tax Havens: First Evidence based on Country-by-Country Reporting (pdf): Using comprehensive individual country-by-country reporting from the largest banks in the European Union, we provide several new insights:
- Tax havens attract large extra banking activity beyond the standard factors based on gravity equations;
- For EU banks, the main tax havens are located within Europe: Luxembourg, Isle of Man and Guernsey rank at the top of the foreign affiliates;
- Attractive low tax rates are not sufficient to drive extra activity;
- High quality of governance is not a driver, but banks avoid countries with weakest governance;
- Banks also avoid the most opaque countries;
- The tax savings for EU banks is estimated between EUR 1 billion and EUR 3.6 billion.