Thursday

30th Mar 2017

EU tax-scam body stuffed with tax avoidance experts

  • Boats moored in the Bahamas, one of many tax havens in the Caribbean (Photo: Patrick Powers)

The European Commission has stuffed an advisory group on 'transfer pricing' - one of the biggest tax scandals of recent years, robbing countries of billions of euros a year in lost revenues - with multinationals that engage in the practice and the four biggest accounting firms in the world, who advise these firms on how best to do so.

Not a single academic or NGO representative has been nominated to the group of 'experts' set up to investigate the issue, calling into question Brussels' commitment to stamping out the abuses.

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Although 'transfer pricing' sounds like some arcane and boring piece of business jargon, the practice, common amongst multinational operations, is an elaborate conjuring trick that allows companies to enjoy low-tax profits in the hundreds of billions at the expense of public coffers.

Some two thirds of the world's cross-border trade actually happens within rather than between multinational enterprises. In essence, transfer pricing involves these multinational firms in the process of such intra-company trade employing a clever accounting manoeuvre to shift around where profits are generated and losses incurred to the most advantageous jurisdictions in order to slash or even wipe out their tax bill.

"It's common knowledge that most multinationals are actively involved in these practices, with the aim of transferring their profits to the countries with the most favorable tax regimes," said Nuria Molina from Eurodad, a development NGO. "What's more is that they are aided in this by major financial consultancy and audit firms."

Google, for example, cut its taxes by $3.1 billion from 2007-2010 by an accounting wheeze known in the trade as the "Dutch Sandwich" in which the majority of foreign profits are channelled through Ireland and the Netherlands to Bermuda, slashing its overseas tax rate to 2.4 percent.

The practice represents the biggest source of illicit capital flows around the world. With an estimated $1.26 trillion lost in illicit flows in 2008, the latest year for which there are figures, over the last decade, 54.7 percent of similar annual sums over much of the last decade resulted from the manipulation of commercial transfer prices, according to a January 2011 report from Global Financial Integrity, an NGO that campaigns against the cross-border flow of illegal money.

In the wake of the global economic crisis, OECD countries, anxious to shore up government revenues, began to crack down on transfer pricing. The G20 issued a call to clamp down on tax havens and tax evasion.

The EU's recent efforts towards a common tax base aims to, according to EU tax spokesman David Boublil "make internal EU transfer pricing history." The move though, if approved, does not affect European multinationals' ability to engage in the practice outside the bloc.

In April, the commission appointed 16 individuals to the 'Joint Transfer Pricing Forum' an 'expert group' intended to advise the EU executive on the subject, alongside a representative from each member state.

But it appears that Brussels has put the foxes in charge of guarding the hen house.

Every single one of the independent 'non-governmental experts' on the panel comes from a multinational, including Shell, BAE Systems, Unilever and Fiat, and the 'Big Four' accounting firms, KPMG, Deloitte, Ernst & Young and Pricewaterhouse Coopers.

The chair, Bruno Gibert, hails from CMS Bureau Francis Lefebvre, one of the top three tax law firms in the world and a specialist in transfer pricing. Its website says: "Transfer pricing is providing significant opportunities for multinational enterprises to adapt internal remuneration policies to maximise tax effectiveness."

Many of the companies appointed have great experience in avoiding paying their taxes.

Shell in 2005 shifted its main tax-residence from the UK to the Netherlands, where companies can receive foreign dividends tax free, while shifting the ownership of its trademarks to a subsidiary in the village of Baar in the Swiss canton of Zug where firms enjoy corporate tax rates as low as eight percent. The Alpine hamlet is also home to 18,000 other companies.

Anglo-Dutch household product manufacturer Unilever, according an internal memo sent in September last year by CEO Paul Polman, the firm - creator of such brands as Marmite, Persil, Knorr and Lipton - intends to consolidate its global treasury operations by redomiciling in Switzerland.

In 2009, Italian tax authorities initiated an inquiry into allegations that the family of late Fiat chairman had illegally squirreled away €2 billion in assets in Switzerland.

In October last year, UK regulators in the Accountancy and Actuarial Discipline Board announced they were investigating KPMG over audits it had performed for arms manufacturer BAE Systems, in particular commissions paid by the firm and "professional advice, consultancy and tax work".

Meanwhile Louis Vuitton Moet Hennessy (LVMH), the French luxury brand and another appointee to the commission's transfer pricing expert group, was found by a investigation by Alternatives Economiques into the tax haven presence of French companies, to maintain 140 subsidiaries in tax havens, the second largest number of such outfits on the CAC-40, the index of the country's biggest listed firms.

EU spokesman David Boublil told this website: "The selection process was objective and the selected candidates are the ones who are best qualified for the position."

He added that the appointments were made by the director general of the commission's tax department, Walter Deffa, after consultations with the Hungarian EU presidency and BusinessEurope, the trade association of Europe's biggest industrialists.

He said that there had been an application from development charity Christian Aid, but that this was rejected due to an "addressing problem," as they had sent it to "the wrong email address."

He rejected the suggestion that the commission should be making an effort to expand the representation beyond those companies engaged in transfer pricing.

"Apart from multinationals and the accounting firms, the expertise in this area is very limited," he said.

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