The Finance Ministers of the Member States, represented in the Council of the EU, yesterday updated the so-called black list of tax havens. They are 12: American Samoa, Anguilla, Dominica, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, American Virgin Islands and Vanuatu.
However, the elephant in the room remains unfair tax competition from various EU member states. In a resolution on January 21, the European Parliament (EP) asked the European finance ministers to push for a comprehensive reform of the list – adopted for the first time in 2017 – to examine and potentially include member states that behave as tax havens. The MEPs propose changes to give the list of non-cooperative countries and territories in tax matters (their official name) with greater transparency, coherence and impartiality. The Special Commission on Financial Crimes and Tax Evasion and Avoidance (TAX3) singled out seven EU countries in 2019 for showing “features of a tax haven and facilitating aggressive tax planning”: Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands.
A recent study by the Tax Justice Network (a network made up of NGOs, academics, unions …) has revealed that while the countries on the EU’s black list are responsible for less than 2 percent of global tax losses, the member states of the EU accounts for 36 percent of global tax losses, which translates to $ 154 billion annually. Furthermore, the list – which is renewed twice a year – does not include any of the 20 worst corporate tax havens in the world.
“The current list is confusing and ineffective. While potentially a powerful tool to stimulate reforms outside the EU, in practice it falls short of its potential, ‘says Paul Tang MEP (S&D, Netherlands), chairman of the EP’s Tax Subcommittee , to Europe Today. When creating the list, the EU countries “forgot one thing: the real tax havens. Collecting only 2% of the total tax avoidance, it means that many tax havens, in the EU and outside the EU, are left free, ‘adds the Dutch MEP, who also believes that the Council’s choice to grant an extension to potential members from the list as Turkey and Australia is due to “political reasons.”
Ankara, which had until December 31, 2020 to show “tangible progress” in the automatic exchange of tax information with EU member states, will remain on the so-called ‘gray’ list (Annex II) and will count until the next 30 June to meet this requirement. In its statement, the Council regrets that Turkey has not provided any evidence that an effective exchange of data has taken place with six of the 27 member states. On the other hand, the Council has decided to remove Morocco from the “gray list” of non-cooperative third countries. The decision recognizes Morocco’s efforts to comply with international standards for tax governance. In the gray zone are nine jurisdictions: Australia, Barbados, Botswana, Eswatini (Swaziland), Jamaica, Jordan, Maldives, Thailand and Turkey.
Chasing tax havens has become even more urgent in the era of the coronavirus. To face national recovery plans and their consequent reforms, European governments need resources with which to finance the recovery and minimize the leakage of significant tax revenues both to countries outside the EU and to other member states. According to a 2020 survey conducted by the international initiative ‘More in Common’ in seven countries (UK, France, Germany, Italy, the Netherlands, Poland and the US), between 84% and 95% of citizens They were in favor of conditioning public bailouts for companies that they do not use tax havens and pay the corresponding taxes in their country of origin.
The European Parliament calls for greater transparency
In the January plenary session, MEPs highlighted cases such as the Cayman Islands, outside the black list despite applying a tax rate on corporate tax of 0%. “While Barbados causes 4 billion in tax losses, Dominica causes a total of zero,” the NGO Oxfam International tweeted yesterday against the decision of the EU finance ministers to suppress the former and include the latter. Chiara Putaturo, Oxfam adviser for taxes in the EU, highlights to Europe Today the three main shortcomings of the process: weakness and unfairness of the criteria by which real tax havens are penalized in some developing countries; lack of transparency both in the procedure and in the body that manages the list; and lack of coherence, as some EU member states act as tax havens.
Oxfam’s analysis finds that the EU list of tax havens continues to fail to effectively identify countries that use harmful tax practices by helping the wealthiest to evade their commitments. According to the NGO, in 2019, five EU member states (Cyprus, Ireland, Luxembourg, Malta and the Netherlands) had characteristics typical of tax havens: high levels of foreign direct investment, intellectual property payments, interest, dividends. With just over 613,000 inhabitants, the Grand Duchy of Luxembourg has levels of Foreign Direct Investment between 67 and 100 times greater than its economic weight (GDP), according to recent research by the French evening Le Monde (OpenLux).
The EP’s Tax Subcommittee criticizes that the Code of Conduct Group (the body in charge of examining tax havens) meets behind closed doors and asks that the European Parliament also participate in the process. Its president advises that, if the Council is not willing to introduce it, the European Parliament will take the necessary measures on its own. Along the same lines, Oxfam calls for the European Parliament to be more involved in the process, especially when it comes to receiving information on the revision of the list before the final decision.
European countries such as Switzerland, San Marino and Andorra, which has been in the news these weeks due to the departure of influential Spanish youtubers to pay less, are highlighted in green by the Council considering that they cooperate with the Union and have implemented the necessary reforms.
“This is because the EU does not automatically include countries with zero percent or very low corporate tax rates, as it is not considered a criterion for identifying tax havens. In this way, countries such as Andorra (legal tax rate of 10% and effective tax rate of 8.9%) remain free to engage in aggressive tax competition and are responsible for a race to the bottom in corporate tax ”, he values the Oxfam analyst.
The EU registers the largest losses worldwide as a result of the transfer of profits to tax havens, and it is estimated that each year it loses around 20% of its income from corporate tax
Basically, the European Union registers the largest losses worldwide as a result of the transfer of profits to tax havens, and it is estimated that each year it loses around 20% of its income from corporate tax.
Tax Justice Network estimates that the European economies most affected by the pandemic, such as France, Spain and Italy, lose 10 billion in tax revenue annually due to corporate tax evasion facilitated by the Netherlands, which is precisely where the chairman of the subcommission comes from. for tax matters of the EP, which despite everything is optimistic with the effects of the pandemic crisis on public opinion about the importance of taxes. “People value more than to finance the necessary expenses incurred during the crisis, we have to contribute together and fairly. This can be done by fighting against tax avoidance, but also by increasing the tax burden on those who have seen their tax bill decrease the most in recent years, so that everyone contributes to our recovery. In the Netherlands, most political parties, from left to right, now advocate this, ‘he concludes.
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