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28th Feb 2024

EU commission wants tax haven blacklist

  • Juncker helped to make Luxembourg a tax-avoidance capital in the EU (Photo: Jimmy Reu)

The European Commission wants to draw up a blacklist of tax havens in its efforts to crack down on corporate tax evasion.

The plan is part of a larger legislative proposal presented on Tuesday (12 April) to require some 6,000 big firms operating in the EU to publish tax-related information on their websites.

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EU financial services commissioner Jonathan Hill said the proposed directive is needed to make companies more accountable and to create a "fairer competition between companies regardless of their size".

Up to €70 billion are lost each year in the EU because of corporate tax avoidance. Big firms in high-tax countries also pay on average 30 percent less tax when compared to smaller companies.

The EU commission has been working on the proposal for the past 18 months but amended it following last week's leak to the media of some 11 million documents from Panamanian law firm Mossack Fonseca.

The leaks, known as the Panama Papers, have provided broad insight into how the global elite avoid paying their fair share into the public coffers.

Hill said the Panama Papers "strengthen our determination to make sure that taxes are paid where profits are generated".

But such statements are unlikely to appease tax transparency critics, given that Hill’s boss, commission chief Jean-Claude Juncker, helped to turn Luxembourg into a tax haven during his long tenure as the Grand Duchy's finance and prime minister.

Hill's latest proposal would require companies with an annual turnover of some €750 million or more to reveal the income tax they pay inside the European Union on a country-by-country basis.

The nature of the activities, number of employees, total net turnover, profit made before tax, amount of income tax due, amount of tax paid, and accumulated earnings, would have to be published on their websites.

The commission is hoping the proposal would be adopted by end of the year. If the deadline is met, EU states would then have one year to transpose it.

The blacklist is a measure added in the wake of the Panama Papers.

But which tax havens to be included will likely generate controversy. A similar effort made last year excluded the United States and Switzerland. The US state of Delaware is a corporate tax haven.

"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. Despite what the commission is promising, we would be very surprised if the next list is any better," said Tove Ryding from the Brussels-based European Network on Debt and Development (Eurodad).

EU officials refused to speculate which countries would appear on the new list. But the plan is to have it adopted and published by the end of 2017.

"We will assess each and every country's jurisdiction, not just small quote unquote tax havens," an EU official told reporters in Brussels.

How the EU commission wants to create the list may also prove politically sensitive. It has proposed using a delegated act, which gives the Brussels-executive more discretion.

A delegated act can only be overturned by a qualified majority among member states or an absolute majority in the parliament. This has to be done within 90 days of its adoption.

Tax transparency campaigners say the commission's proposal should have been global in scope. The fear is that a blacklist will leave out other jurisdictions.

"Unless the reporting obligations cover all countries, it will be impossible to find out if and how firms are channeling funds to tax havens. Unscrupulous firms will simply move their tax activities to countries not covered by the obligations," said Molly Scott Cato, a spokesperson for the Green group in the European Parliament.

The commission, for its part, says a global scope would put EU firms at a competitive disadvantage and would possibly expose them to double-taxation.

"We want to avoid unnecessary exposure of our companies to double-taxation," said an EU official.

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