Paradise Papers: EU is going to discuss tax havens blacklist
European Union states will on Tuesday bring forward a discussion on plans for a tax havens' blacklists after newly leaked documents revealed investments by wealthy individuals and institutions around the globe, officials said.
The subject's inclusion on the monthly meeting's agenda of EU finance ministers came after weekend media reports citing the "Paradise Papers", a trove of financial documents leaked mostly from Appleby, a prominent offshore law firm. 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. The latest revelations "put renewed emphasis on the work the European Commission is doing to fight tax avoidance", the vice president of the EU's executive arm, Valdis Dombrovskis, told reporters on Monday.
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.
EU countries had planned for months to reach an agreement on a blacklist for tax havens by the end of this year. The new revelations prompted the discussion to be brought forward, EU officials said, but no final decision was expected on Tuesday. The EU has discussed several measures to crack down on tax avoidance, including following the "Panama Papers", a release by the ICIJ last year which chronicled a shadowy world of offshore holdings and hidden wealth. Measures proposed by the European Commission include an EU-wide list of tax havens meant to discourage the rerouting of profits made in the EU to tax-free or low-tax countries.
At the moment, each EU state has its own list of jurisdictions that are seen as less cooperative on tax matters. Criteria to define a tax haven vary greatly among EU states and some of them omit any jurisdictions in their national blacklists. An EU-wide blacklist is believed to carry more weight. Jurisdictions included in the list could be subject to sanctions if they did not cooperate.
"It's time that we agree and publish a blacklist on tax havens," EU tax commissioner Pierre Moscovici told reporters, calling for a "credible" list and "adequate sanctions" when serious breaches are unveiled. There are no details yet of the type of sanctions that could be imposed, although being on the blacklist in itself could discourage individuals and companies from putting money in those jurisdictions.
Moscovici added that the EU blacklist should be more ambitious than the existing list of the Organisation for Economic Cooperation and Development (OECD), a global group of mostly rich nations that has so far been leading the fight against tax avoidance. The OECD list of non-cooperative jurisdictions on tax transparency includes to date only Trinidad and Tobago. Two EU officials told Reuters a "dialogue" was ongoing with some jurisdictions around the world to make sure they would abide by the criteria set by the EU on tax transparency.
Last year, the European Commission identified 81 countries and jurisdictions that had a higher chance of facilitating tax avoidance and could have been included in the blacklist if they did not cooperate. Some EU countries remain skeptical about the blacklist and are themselves under scrutiny for unfair tax competition. Smaller EU states, like Luxembourg, Malta and Ireland, attract firms with lower corporate taxes. Some have been sanctioned for deals with multinationals that slashed their tax bills, reducing revenues in other EU states.
To win over their resistance, the proposed EU blacklist would apply only to non-EU countries. Also, states which charge no corporate taxes will not be automatically considered tax havens, under a preliminary deal reached by EU finance ministers last year. 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.