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

Financial Mirror (Cyprus) - - FRONT PAGE -

New Euro­pean Union rules to force multi­na­tional com­pa­nies to pub­lish their tax bills were crit­i­cised on Tues­day by cam­paign­ers for be­ing too weak to stop tax­dodg­ing 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 EUR 750 mln 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 EUR 50 bln to 70 bln 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.”

The Com­mis­sion is draft­ing the tax haven 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,

black

list, 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.

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.

“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 EUR 750 mil­lion to EUR 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.

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”.

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