Thursday

15th Nov 2018

EU tax havens drain money from developing nations

Tax havens in countries such as Luxembourg are zapping billions of euros from the coffers of developing countries and forcing weak governments to rely on dwindling international development aid, experts say.

Charles Abugre, the Africa regional director for the United Nations Millennium Campaign, says multinational corporations and the legal structures behind tax havens in EU member states prevent nations from developing and perpetuate a cycle of poverty.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

“The very concept of a jurisdiction selling secrecy as its competitive advantage is killing democracy,” he told this website in Brussels on Wednesday (12 November).

“Not only does it undermine wealthy countries, it totally destroys democracy because the essence of democracy and democratic accountability is transparency.”

The issue is of particular relevance for EU lawmakers, who on Monday evening in a closed-door meeting, were unable to reach a consensus on “beneficial ownership” in the draft EU anti-money laundering directive.

Beneficial ownership requires full disclosure of the people behind legal entities like anonymous companies and trusts. The structures are often set up by criminals to hide their true identities.

The schemes have been much criticised by pro-transparency experts and MEPs who want member states to reveal the true identities of people behind the firms and make the data accessible via a public register.

“This is one of the main problems and it hasn’t been resolved yet,” an EU source told this website following the talks.

Member states are reluctant to make the registers public arguing that family trusts, for example, carry a low risk of money laundering.

Both the Czech Republic and Luxembourg recently introduced ‘trusts’ into their national legislation after agreeing to abolish anonymous bearer shares.

But the European Network on Debt and Development (Eurodad), a Brussels-based NGO, says trusts could provide new options for anonymous ownership in the two countries.

For Abugre, trusts are just another huge loophole used by corrupt politicians and European-based corporations to enrich themselves.

“Anybody in political leadership is quite happy to create an entity, registered as a trust, in a secret jurisdiction,” he says.

Aburge, who is from Ghana, has plenty of examples.

“So I am a president. I’ve created a shady trust in Luxembourg. This company arrives back in Ghana as a foreign company to negotiate with me, the president, who co-owns this shady trust, on how we share the revenues in the oil and gas sector. This is what happens,” he says.

The origins of the dubious tax schemes date back to structural adjustment programmes in the 1980s when African governments were told to create big tax exemptions for foreign companies wanting to exploit natural resources.

“This was also incorporated in the EU-Africa agreements, which is the so-called Post-Lome agreement,” says Aburge.

Other problems include price transferring, corporate tax breaks, and the lack of country-by-country reporting.

Transfer pricing allows big firms operating in Africa to hide their profits from local governments.

“If you cannot verify the cost of structure of the operation then the only profit that you have to negotiate is what has been declared by the company,” says Aburge.

Country-by-country reporting would require companies to provide a breakdown of profits earned and taxes paid and accrued. It is an idea that the former governments in Germany and Sweden have opposed.

Aburge is not the only one to raise the red flag.

Cephas Makunike, a research and policy advisor at Tax Justice Network-Africa, a pan-African initiative set up in 2007, says rich countries have consistently ignored the concerns of poorer nations on taxes.

Makunike complains that international tax models set up by the OECD hurt poor nations because they have no say in the matter.

Pressure is mounting for a new model to be set up under auspices of the United Nations.

It has gained little support among EU member states.

According to Eurodad, only Poland backs the idea while all other member states are either hostile or ambivalent about giving poorer countries a say in a tax regime that directly affects development, poverty, and justice.

News in Brief

  1. UK's May defends Brexit deal to MPs, after ministers resign
  2. Brexit MP calls for 'no confidence' vote on May
  3. Denmark blocks Tanzania aid over homophobic crackdown
  4. Second UK cabinet minister resigns over Brexit deal
  5. UK Brexit secretary quits morning after deal agreed
  6. Romanian MPs call for national 'Magnitsky Act'
  7. Tusk: Brexit summit on Sunday 25 November
  8. Full text of Brexit withdrawal agreement published

Opinion

Interpol, China and the EU

China joins a long list of countries - including Russia - accused of abusing Interpol's 'Red Notice' system to harras activists and dissidents.

Stakeholders' Highlights

  1. NORDIC COUNCIL OF MINISTERSTheresa May: “We will not be turning our backs on the Nordic region”
  2. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  3. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  4. NORDIC COUNCIL OF MINISTERSState of the Nordic Region presented in Brussels
  5. NORDIC COUNCIL OF MINISTERSThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  6. NORDIC COUNCIL OF MINISTERSThe Nordic gender effect goes international
  7. NORDIC COUNCIL OF MINISTERSPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  8. NORDIC COUNCIL OF MINISTERSNordic design sets the stage at COP24, running a competition for sustainable chairs.
  9. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  10. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  11. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  12. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs

Latest News

  1. Key points of the Brexit deal (if it ever comes into effect)
  2. Romania heaps scorn on 'revolting' EU criticism
  3. US steps in to clean up Cyprus
  4. 'Decisive progress' on Brexit as British cabinet backs deal
  5. Asylum for Macedonia's ex-PM put Orban on spot
  6. How the 'EU's Bank' fails to raise the bar on accountability
  7. Knives out on all sides for draft Brexit deal
  8. Romania data chief defends forcing press to reveal sources

Stakeholders' Highlights

  1. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  2. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  3. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  4. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  5. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  6. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  7. Mission of China to the EUChina: Work Together for a Better Globalisation
  8. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  9. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  10. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  11. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  12. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future

Join EUobserver

Support quality EU news

Join us