Lack of global stance on tax havens deepens divide

Lost revenue from aggressive corporate tax avoidance strips resources from public services and destabilises economies. [GUE/NGL/Flickr]

The EU’s ‘black’ and ‘greylist’ of tax havens on 5 December may have been an attempt by finance ministers to prove their toughness in clamping down on tax evasion and avoidance, but to many it merely increased the international community’s divide on tax.

On 13 December, Mongolian foreign minister Damdin Tsogtbaatar promised to “implement a series of co-ordinated measures” to remove his country from the ‘blacklist’ of 17 countries.

Mongolia vows action to get off EU tax haven blacklist

Mongolia needs to take action at “all levels of government” to get itself removed from a European Union blacklist of tax havens, its foreign minister said, following talks with European counterparts.

If that brought a small degree of vindication to the EU’s position, the reaction elsewhere has been decidedly mixed.

The publication of the list, and the threat of sanctions and losing access to EU programmes, brought a sharp rebuke from the African Caribbean and Pacific (ACP) community, which described it as “unilateral and discriminatory practice” and a breach of the 2000 Cotonou Agreement between the two blocs since signed by 78 ACP countries.

Namibian finance minister Calle Schlettwein, whose country was one of two African nationals to be named and shamed, described the listing as “unjust, prejudiced, partisan, discriminatory and biased.”

Schlettwein added that the EU should instead help countries like Namibia who had been “exposed to illicit outflow of cash, as has been revealed in the recently published Paradise Papers.”

The failure of EU ministers to include any of their own countries linked to the Panama and Paradise Paper, or any of the British Crown Dependencies or Overseas Territories, such as Jersey and Bermuda, has also prompted a backlash from developing countries and transparency NGOs.

MEPs try to add EU member states to the blacklist of tax havens

Socialists (S&D) want to add the Netherlands, Ireland, Luxembourg and Malta to the blacklist of tax havens in the EU during a vote on the report of the committee of inquiry on tax evasion next Tuesday (12 December). EURACTIV France reports.

Applying the EU’s criteria to its own member states, Oxfam found that Ireland, the Netherlands, Luxembourg and Malta, would be included in the lists.

Recognition for the need of global solution

The perception that the EU and wealthy nations use international rules to preserve their economic control over less developed economies adds to the sense of grievance.

The G77 group of developing countries from Africa, Latin America and Asia, have been calling for the UN’s committee of tax experts to become a formal rule-making body for several years – taking over the role from the Paris-based Organisation for Economic Co-operation and Development – on the grounds that none of them are part of the 34-country body. The European Commission, and most of the EU’s member states, have consistently opposed the proposal, along with the United States and Japan.

The OECD directives cover base erosion and profit shifting (BEPS), to prevent firms from re-routing profits through shell companies, and require the automatic exchange of information on tax payments between governments.

“The OECD made these rules between 2013 and 2015 but we are still seeing the tax scandals continue. There is a growing recognition of the need for a global solution,” Tove Marie Ryding, of the European Network on Debt and Development (Eurodad), tells Euractiv.

“We have a very sharp divide between the EU and other developed countries and developing countries,” she adds.

“The lack of global co-operation is escalating and hostility is growing.”

In the meantime, a host of European governments are in the process of re-negotiating bilateral corporate tax treaties with developing countries, many of which date back to the transition from colonialism.

Regional blocs of developing countries are have started to harden their negotiating stances. In November, the six countries in the East African Community became the latest organisation to agree their own model tax treaty.

“The biggest struggle was getting governments to take up the cause of tax transparency,” says Alvin Mosioma, Executive Director of the Tax Justice Network, Africa. He contends that tax incentives cost East African exchequers $2.8 billion (€2.36bn) per year in lost revenue.

“In 2008 there were maybe 3 mentions of tax and illicit financial flows (in the African Union’s annual resolution), 10 mentions in 2010 and almost a full page in 2012…it has been a gradual progression,” he adds.

Ryding insists that the latest batch of tax treaties are scarcely more progressive.

“There’s a lot of competition to have the tax treaty with the lowest rate with an African country. Even the more moderate treaties have reduced tax rates by more than 1%,” she says.

Many of the latest treaties feature a ‘principle purpose test’, under which host countries have to be able to prove that a company is avoiding tax. That puts pressure on cash-strapped governments to beef up their tax administrations, says NGO activists.

“Developing countries are getting more concerned about being arm-twisted to sign up to rules that can’t help them,” says Ryding.

Background

After intense negotiations, EU member states point their finger at 17 tax havens in a somewhat succinct blacklist that disappointed officials, MEPs and transparency activists.

17 countries have been labelled as “non-cooperative” by the EU’s ministers of finance and economy on 5 December. Forty-seven more countries, whose fiscal rules are not in line with European standards but who committed to change them, were put on a “grey list”.

The list should encourage “good governance around the world, to maximise preventive efforts against fraud and tax evasion”, as part of the EU’s external fiscal strategy.