Tax campaigner: No one noticed LuxLeaks in Central and Eastern Europe

Ondřej Kopečný [Ondřej Kopečný]

The LuxLeaks and Panama Papers scandals got hardly any attention in Central and Eastern European countries, Ondřej Kopečný told The tax campaigner called on Brussels to push for greater awareness of the dangers of tax evasion in the region.

Ondřej Kopečný is deputy director at Glopolis, an NGO,  and one of the authors of Who Pays The Taxes in Central and Eastern Europe?, a report covering the Czech Republic, Poland, Slovenia, Latvia, Hungary and Bulgaria.

Kopečný spoke to’s political editor, James Crisp.

I was surprised that LuxLeaks and the Panama Papers scandal got a lot less attention in Central and Eastern Europe than elsewhere in the EU.

It’s true that it didn’t create too much attention. I still think that people do not feel that this is an issue for the countries in the CEE [Central and Eastern Europe] and also politicians do not make it a big issue.

There should be more attention to the fact that this is not really an issue in these countries. This means that politicians from these countries do not feel, if they retract or are neutral to proposals on tax dodging, that it will cost them some points on the domestic level.

Here in the Brussels bubble, it seems that it is clear how super important this issue is, but actually, there are countries with publics that do not understand what LuxLeaks is and how it is important and how this is linked to EU policies. In these countries, at the same time, EU support is at very low levels.

This is an area where we need more EU. I think this could be an opportunity for EU Brussels bubble to show that actually, this is something where more EU is better than more Czech Republic or more Bulgaria.

But is tax dodging a problem in these countries?

Profit shifting, tax dodging, this is something that concerns CEE countries. So yes it is certainly an issue.

It’s different for each country but in general, the matter was that we took the ten biggest companies, meaning by their turnover, and basically looked at how much profit they made in that country and how much tax they paid. What we can see from that is if the companies are actually paying the minimal tax rate, or whether they paid less. In some countries, we saw that they paid much less than they should.

My eye was caught in particular by the example of Bulgaria.

Bulgaria is, even more, special because these companies even get subsidies. Not only did they not pay their fair share of their tax and profits, they even get payments from the government.

Am I right in saying the ten biggest companies in Bulgaria got more from the state than they actually paid in taxes?

That’s striking, isn’t it? This is because of the way our countries view foreign direct investment. Something which is very precious because it brings employment, it brings new technologies, it brings innovations.  This is how it’s presented by the politicians but we don’t necessarily see the costs. We don’t do the cost-benefit analysis.

That’s another thing that came up in the report— do our governments get enough from foreign direct investments and the way they attract them through specific tax regimes or tax holidays or subsidies? Are those few thousand jobs enough?

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Do CEE countries have an inferiority complex? Do they feel that they would not get foreign investment without these perks?

I think partly it’s in politicians’ minds that they need to deliver employment or new workplaces and that is what they think will get them elected. Second, I think if you go back to why there’s no outrage that companies do not pay their fair share, I think there’s quite a low trust in the state and state institutions. There is a common belief that if you pay tax, the state will not use the money in the most efficient way. In a best case scenario, a too expensive road will be built. In the worst case scenario, it will just be put in someone’s pocket.

Do people understand that the ordinary taxpayer has to pick up the slack when companies do not pay enough tax?

No. They don’t. When we talk about tax evasion in the Czech Republic or in Czech media, it’s almost always understood as tax evasion of VAT. If you say tax evasion in the Czech Republic, many people will think about VAT because the current government focuses on the VAT fraud. In the media as well, because they are very good at PR.

Is there greater trust in the European institutions than in the nation states?

Honestly, especially in the Czech Republic, I think trust in European institutions is even lower. This is quite a paradox, especially when we talk about taxes.

Does that harm any EU push towards greater tax transparency?

I think at least people would understand as logical an EU push for a citizen to have access to information about the profits of companies or beneficial owners. But, when we talk about harmonised rules for a tax base, this will be viewed totally differently. Basically that this is something Brussels is going to impose on us and we will lose our sovereignty over our taxation.

That’s not just a perception problem in the CEE…

I very much agree, and I think maybe this is common for all the countries. Profits travel globally, but the rules stop at national borders. So how do you want to tax profits which actually can travel very easily across borders?

The Commission is led by Jean-Claude Juncker, who was in charge of Luxembourg and was blamed for LuxLeaks.

I understand, and this is an argument that is very often used in my country. We cannot do anything about it. If you can say the proposals are taking us further to raise taxes where economic activity takes place, and even if Mr Juncker heading the Commission, which is proposing it, what does it mean? Do we just dismiss a good proposal because of Juncker? With Luxembourg, that’s the problem, and then when we talk about some of the proposals, the black list especially. We can see the hypocrisy. Which is not only with Luxembourg but with other tax havens such as Netherlands, Britain, and maybe Hungary. We see that it is not only Juncker’s game.

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Is part of the problem that in some of these countries there’s been a history of corruption? And how much of an issue does the communist past have to play?

Many think nothing good can come from the state. I think this is actually something that politicians and others can do something about. The more people know how this money is actually used, then the more trust they have in the state and higher trust that money is spent effectively. That makes their tax morale better and them more likely to pay tax.

This is why I don’t understand why the Czech Republic is against public country by country reporting or why it was so difficult to get their approval of public registries of beneficial owners. If we want to keep this trust between citizens and the states then the state needs to be more open and when they collect information, what is the reason they don’t share that with the citizens? This would help to increase trust in state institutions, in public money and it starts with transparency.

Do you need a CEE LuxLeaks?

This might help but I would like that this tax awakening comes from a more positive place.

We’ve got a US president who won’t publish his tax returns…

I have hope that we will survive the four years and wake up from a bad dream (laughs).

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On 12 February 2015, the European Parliament decided to launch a special committee for an initial period of six months, to investigate the sophisticated tax rulings of EU member states that became the centre of a media storm earlier this year.

With 45 members and the same number of substitutes, the TAXE Committee's role is primarily to investigate the compatibility of tax rulings with the rules on state aid and tax law. The special committee will then draft a report, including recommendations on how to improve transparency and cooperation between member states to the benefit of the internal market, European companies and citizens.

More than 300 companies, including PepsiCo Inc, AIG Inc and Deutsche Bank AG, secured secret deals from Luxembourg to slash their tax bills, the International Consortium of Investigative Journalists (ICIJ) reported on 5 November, quoting leaked documents.

The companies appear to have channeled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes, the group of investigative journalists said, based on a review of nearly 28,000 pages of confidential documents.

Luxembourg has faced international criticism following the revelations. The leaks put pressure on European Commission President Jean-Claude Juncker, a prime minister of Luxembourg, to explain his role in the country's tax policies.

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