EU committee names seven member states as ‘tax havens’
The European Parliament special committee on financial crimes, tax evasion and tax avoidance has released its final report, which, at last, identifies several of the EU’s own member states as tax havens.
The committee, known as TAX3, was set up in March 2018, partly to respond to revelations in the Paradise Papers.
It has found that Ireland, Belgium, Cyprus, Hungary, Luxembourg, Malta and the Netherlands all share some characteristics of tax havens, and claims that the Netherlands, by facilitating aggressive tax planning, deprives other EU member states of €11.2 billion (£9.6 billion) of tax income.
the Netherlands and Luxembourg are the top two suppliers of financial secrecy services to the EU and the omission of these countries from the EU’s tax haven blacklist has long been derided by tax campaigners.
The report called for a European financial police force and an EU financial intelligence unit, as well as setting up an EU anti-money laundering watchdog. It also wants a global tax body to be established within the UN. Importantly, the report also said that whistleblowers and investigative journalists should be better protected and that an EU fund should be established to help investigative journalists.
The committee’s recommendations, including a detailed roadmap, were adopted by the European Parliament by a comfortable majority of 505 to 63.
IMF (mostly) on board with unitary taxation
In further evidence that reform of the international tax system is gathering momentum, even the IMF is now admitting that it is not fit for purpose. Speaking following the publication of its policy paper ‘Corporate Taxation in the Global Economy’, the IMF’s managing director, Christine Lagarde, said:
“An impetus for rethinking international corporate taxation stems from the rise of highly profitable, technology-driven, digital-heavy business models. The ease with which multinationals seem able to avoid tax, and the three-decade-long decline in corporate tax rates, undermines faith in the fairness of the overall tax system. The current international corporate tax architecture is fundamentally out of date.”
The Tax Justice Network welcomed the IMF’s report, particularly its support for replacing the ‘arm’s length’ principle with unitary taxation, which “would greatly reduce the scope for profit shifting”, and would lead to a major rebalancing of tax rights towards lower-income countries as long as the formula included employment.
- Arm’s length principle – the idea that you can judge whether parts of a multinational group are trading with each other like unrelated parties trading at “arm’s length” by whether they are selling things to each other at market prices. In practice, it doesn’t work because many things, like intellectual property (e.g. use of the company logo), don’t have a clear market price.
- Unitary taxation – assesses a multinational group’s profits at the global level and then apportions that profit between the different countries of operation based on their share of real economic activity.
Although the IMF is not a standard-setting body, it does have considerable influence.
The Chief Executive of the Tax Justice Network, Alex Cobham, said: “The arm’s length approach has let multinational corporations get away with profit shifting to the tune of $500 billion in dodged tax across the world each year. The OECD has asked the question of whether it is time for radical reform – and now even the IMF has joined the call we’ve been making for decades."