EU denounces ‘shocking’ Paradise Papers revelations

Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, Taxation and Customs speaks to media prior to the Eurogroup meeting in Luxembourg, 9 October 2017. [EPA/EFE]

The European Union on Monday (6 November) denounced the “shocking” revelations on the way top companies and dignitaries, including Britain’s Queen Elizabeth II, avoid taxes using offshore wealth hubs.

EU finance ministers meeting for regular talks in Brussels will discuss tax avoidance on Tuesday after a trove of leaked documents exposed the great lengths to which the global elite will go to avert paying a fair tax.

The findings have emerged as part of the Paradise Papers released late Sunday by the US-based International Consortium of Investigative Journalists (ICIJ), which was behind the similar Panama Papers made public last year.

'Paradise Papers' embarrass US trade chief, Queen Elizabeth, and counting

The International Consortium of Investigative Journalists on Sunday (5 November) released The Paradise Papers, a global investigation that reveals the offshore activities of some of the world’s most powerful people and companies.

“This new scandal shows once again that some companies and rich individuals are ready to do anything to not pay tax,” said European Economics Affairs Commissioner Pierre Moscovici.

“In light of these shocking revelations, I call on member states to rapidly adopt a European tax haven blacklist, as well as other dissuasive measures,” he said.

Much as with the Panama Papers report and LuxLeaks, the latest documents also expose the secret ways the rich and multinationals, with the help of accountancy firms, shift profits across the globe to drastically cut tax.

The LuxLeaks scandal revealed in 2014 that Luxembourg gave companies huge tax breaks while European Commission President Jean-Claude Juncker was prime minister.

Perfectly legal, these methods helped divert billions in profit from the tax man, using well established wealth hubs such as Luxembourg, the British Virgin Islands and Switzerland.

EU competition chief Margrethe Vestager, who has cracked down on EU countries making illegal tax breaks to Apple and Amazon, lauded the journalists who made the latest revelations.

In its revelations, the ICIJ showed that Apple used Bermuda-based law firm Appleby to transfer the company’s headquarters from Dublin to Jersey once Ireland changed policy.

“Congratulations and thanks to ICIJ for all the work done on Paradise Papers. It enables the work against tax avoidance, for transparency,” said Vestager in a tweet.

Despite the tough talk from Brussels, Europeans have struggled to agree on the basis of an EU-wide tax haven blacklist.

Britain, Malta and other smaller EU nations are reluctant to include zero or near-zero corporate tax rates as one of the criteria to land on the EU’s blacklist.

The EU ministers are due to bridge their differences and draw up an official list of unwanted tax havens in December, whittling down an initial list of 92 countries finalised last year.

Sources said EU officials have warned about 60 countries that their tax policies may be problematic, demanding further information before a November 18 deadline.

Company headquarters

The common practice of shifting headquarters has also raised eyebrows in Brussels, where the European Commission is preparing a new directive which for the first time, could establish a harmonised EU framework for the cross-border transfer of company seats.

Large multinationals routinely shop around Europe for the sweetest tax deals and labour conditions, using legal arrangements such as the dual location of company headquarters.

At worse, they can form “letterbox companies” that take advantage of the parent–subsidiary relationship offered in countries like Luxembourg and the Netherlands to pay no taxes on dividends or capital gains made from the sale of shares.

The risks associated with unregulated transfers of company headquarters include tax evasion, money laundering and silent liquidation, when directors and shareholders wind down an insolvent company to the detriment of creditors.

“Companies should be able to effectively exercise their right to freedom of establishment,” said Věra Jourová, the EU Commissioner for Justice, Consumers and Gender Equality, who is in charge of drafting the new directive on behalf of the EU executive.

“But we also want this to happen with full respect of national social and labour prerogatives,” she told EURACTIV in a recent interview.

EU eyes corporate rules shake-up with law on seat transfer

The European Commission is preparing a new directive on the cross-border transfer of company seats, a move that could have far-reaching implications for other areas of corporate governance, including tax planning and cross-border mergers, EURACTIV has learned.