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10/12/2016

EU’s new tax haven blacklist doomed to failure, warn campaigners

Euro & Finance

EU’s new tax haven blacklist doomed to failure, warn campaigners

Campaigners on Tuesday built their own tax haven, outside of the European Commission. [Zala Zbogar/Oxfam Solidarite]

New European Union rules to force multinational companies to publish their tax bills were criticised on Tuesday (12 April) by campaigners for being too weak to stop tax-dodging corporations hiding their profits.

While the European Commission said the new laws proved the EU was leading the world in the fight against tax avoidance, critics warned that a new tax haven blacklist was doomed to fail.

Instead, companies would simply move cash to countries that were too influential to go on the list, they said, such as the US and Switzerland.

The recent Panama Papers and LuxLeaks scandals have exposed how big multinationals move cash around shell companies in different countries to pay as little tax as possible.

The European Commission unveiled in Strasbourg today new laws to force companies operating in the EU that earn over €750 million euros worldwide to publish what they earn and how much tax they pay in each of the bloc’s 28 countries.

UK Commissioner Jonathan Hill said, “Today, by using complicated tax arrangements, some multinationals can pay nearly a third less tax than companies that only operate in one country.”

The EU loses €50 billion to €70 billion in tax revenue every year, due to corporate income tax avoidance, the European Commission said. 88% of people in the EU support stronger rules on tax.

The Commission added that the country by country reporting would apply to about 6,000 companies, or 90 corporations above that size, and that the data would be posted on company websites.

Data will include nature of activities, number of employees, total turnover, and profit before tax, tax owed in a country, tax paid and earnings.

But, unless the earnings are declared in a blacklisted tax haven, the data reported outside the EU will not be published. It will instead be anonymous.

Tove Maria Ryding, tax campaigner at the European Network on Debt and Development, said, “As long as the proposal doesn’t cover all countries, multinational corporations will still have plenty of opportunities to hide their profits.”

Tax haven blacklist

The Commission is drafting the tax haven black list, which should be ready in the next six months.

But that black list was doomed to fail, Ryding, who works with NGOs such as Oxfam and Christian Aid, said.

“In the past the EU’s list of tax havens has been extremely political with countries like the US and Switzerland, which are documented as having been used as tax havens, mysteriously left off the list,” she said.

“The last list caused such a scandal that the EU had to remove it from its website less than six months after it was published.”

Multinational companies would simply move their profits to bigger tax havens such as the US, that were too powerful to be put on the list, she said in comments echoed by other NGOs (see positions).

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The rules build on the Base Erosion and Profit Shifting (BEPS) guidelines drafted the Organisation for Economic Cooperation and Development.

The BEPS guidelines, which OECD countries are aiming to adopt to create a global level playing field, do not insist on data being public. Instead they must be shared with tax authorities.

Valdis Dombrobskis, Vice-President for the Euro and Social Dialogue, said the fight against tax avoidance was a key priority of the Commission.

He said, “Today, we are making information on income taxes paid by multinational groups readily available to the public, without imposing new burdens for SMEs and with due respect for business secrets.

“By adopting this proposal, Europe is demonstrating its leadership in the fight against tax avoidance”.

The move could lead to conflict with the US, which was reported to be concerned that tax investigations after Luxleaks were unfairly targeting successful American multinationals.

The rules will take effect in 2018, but must first be agreed by the European Parliament and EU national leaders.

The EU already has rules that mean banks and mining companies must publish their profits and taxes in every country they work in, even if they are outside the EU.

Juncker backs forcing multinational companies to publish their tax bills

EXCLUSIVE / European Commission President Jean-Claude Juncker supports forcing multinational companies like Google, Amazon, and Apple to publish the profits they make and the taxes they pay in each EU country they operate in.

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Positions

"We want companies to pay taxes where the value is created. The new law will help to make visible whether this principle is enforced or not", Burkard Balz MEP, spokesman on tax matters for the European People's Party (EPP), the largest political group in the European Parliament.

But Balz warned against expecting too much from the so-called country-by-country reporting: "This alone does not fix the problem. Also, we must not jeopardise European companies' competitiveness by asking them to disclose information that American and Chinese companies do not have to disclose."

In Parliament, the French socialist delegation welcomed the Commission’s proposal, saying it was “a step in the right direction”. However, they called on the Commission to make the rules “even more universal, simple and in the end, more effective,” with the following suggestions:

  • Lowering from €750 million to €40 million the turnover threshold above which public reporting becomes mandatory for companies.
  • Broadening the country-by-country reporting obligation to cover activities outside of Europe.

The Green group reacted also with mild enthusiasm. "While we welcome the fact the Commission finally taken up the baton in proposing this crucial measure for transparency of corporations' tax affairs, what it is proposing today falls short," said Green tax spokesperson Molly Scott Cato, a British MEP. "The weak ambition in these proposals shows Commission is running scared of EU governments who want tax competition rather than cooperation. The Commission should be defending the public interest rather than seeking the lowest common denominator from the outset."

"The Commission is only proposing reporting obligations for firms' activities in a restricted list of countries, mainly within Europe, with crucial countries like the US and Switzerland excluded," Scott Cato said, adding unscrupulous firms will simply move their tax activities to countries not covered by the obligations. "We will only have true tax transparency if corporations are obliged to publicly list their profits and tax payments in all countries they do business," she said.

Chas Roy-Chowdhury, head of taxation at ACCA, the Association of Chartered Certified Accountants,  said,  “We do not think that a BEPS +, as advocated by some member states, would be desirable. We do not wish to see the EU become a destination that businesses consider too reputationally risky and administratively burdensome in which to invest.

“We agree that a certain degree of public scrutiny is needed. We think however  that the information requested should ideally be with tax authorities, and also possibly  accessible by a restricted list of interested parties, but  not for general public display”.

BusinessEurope, the EU's employers' organisation, was more adamant. In a statement, it said the Commission proposal on country-by-country reporting "risk undermining the proper role of tax authorities in enforcing tax legislation, as well as creating uncertainty for business.

"Whilst we recognise that the European Commission has noted the need for a balanced approach in making public companies’ financial information, we believe that these proposals, by making the EU a lone front runner in terms of public disclosure, risk undermining our attractiveness as a location for investment, particularly from overseas.”

Oxfam's EU tax policy advisor, Aurore Chardonnet, said, "The European Commission finally recognises tax transparency as a powerful tool to fight tax avoidance. But today’s proposal is not country-by-country reporting, which is what's needed. It appears the European Commission is more interested in saving face after the Panama Papers, instead of actually fixing the broken tax system.

“The Commission's proposal only requires reports for EU member states and countries on what is likely to be an arbitrary list of tax havens. The Commission criteria to list tax havens are already absolutely vague, and we also expect EU member states to delay or oppose the process of compiling an official EU list. A much simpler solution would be big companies disclosing basic information for all countries they operate in.”

Financial Transparency Coalition’s Lead EU Advocate, Koen Roovers said, “Sadly, it took yet another massive leak to bring the collective world’s attention to the harm of financial secrecy and tax abuse. The European Commission has an opportunity to lead the way on corporate transparency, so it’s disappointing that their proposal fails to include global public country-by-country reporting for companies doing business in the EU. Instead they settled for a half-hearted hybrid that would keep most of the world in the dark.”

ActionAid’s EU tax advocacy officer, Kasia Szeniawska said, "The European Commission’s proposal, presented today, falls far short of what is needed to lift the veil of opacity that shrouds corporate tax deals. It is this opacity which enables multinational companies, to avoid tax in some of the world’s poorest countries as well as in the EU itself.

"The proposal lets off the hook the vast majority of multinational companies by setting a very high threshold for companies covered by the requirement. Also, the Commission misses the whole point of public country-by-country reporting when it suggests limiting the reporting to EU countries and a yet-to-be-agreed list of tax havens, which is likely to be selective and highly politicised. The result is that citizens, journalists and campaign groups won’t get the information they need to scrutinize multinationals’ global tax affairs, and there’s no assurance that the world’s poorest countries will get the information either.

"The European Parliament and the EU Member States should strengthen the proposal by ensuring that it covers all large multinationals, not only the biggest ones, and that it requires them to publish their tax information for all countries where they are present. The Panama Papers show that another half–hearted attempt to tackle tax avoidance simply isn’t good enough.”

Jan Willem Goudriaan, General Secretary of the European Federation of Public Service Unions (EPSU) said, “‘Despite the unprecedented scale of the Panama Papers revelations, the Commission has come forward with a proposal that falls short of much-needed transparency. This is not public country-by-country reporting: companies will only have to make data available about their tax and profits in EU countries and some tax havens on a common ‘blacklist’ whose criteria remain vague. Many known tax havens, like Switzerland and Delaware, will simply not be covered.

“The Commission’s last minute addition of reports on some tax havens is tokenistic. A previous attempt to compile a European ‘blacklist’, as called for by EPSU, was strongly opposed by some governments less than a year ago. The initial list was withdrawn and several countries removed known tax havens from their national lists.”

“The Commission has squandered a golden opportunity to make companies more accountable", said Elena Gaita, policy officer on Corporate Transparency at Transparency International EU. “The last minute addition of tax havens smacks of window dressing. Companies will still be able to strike favourable deals with governments in other parts of the world without public scrutiny.”

Background

The Panama Papers exposed offshore companies used to avoid tax, and has embroiled  figures including Vladimir Putin, Ukrainian President Petro Poroshenko,  David Cameron,  Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson, and Climate Commissioner Miguel Arias Cañete.

It comes at a time when tax avoidance is high on the political agenda.

The fight against tax evasion is one of the Juncker Commission's main priorities. News of the systematic, state-sanctioned tax evasion practices of many multinationals based in Luxembourg, known as the Luxleaks scandal, broke shortly after the new Commission was sworn in.

On 18 March, the executive presented a package of measures aimed at strengthening tax transparency, notably by introducing a system for the automatic exchange of information on tax rulings between member states.

Timeline

  • 2018: Rules come into force.

Further Reading

European Commission: