Sunday

20th May 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.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

“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.

Opinion

Linking EU funds to 'rule of law' is innovative - but vague

Defining what constitutes 'rule of law' violations may be more difficult than the EU Commission proposes, as it tries to link cohesion funds in east Europe to judicial independence. A key question will be who is to 'judge' those judges?

News in Brief

  1. Trump warns Nato allies' low budgets will be 'dealt with'
  2. Only Estonia, Greece and UK hit Nato spending target
  3. EU to start process to counter US Iran sanctions
  4. Macedonia PM sees 'possible solutions' in Greek name row
  5. EU takes six countries to court over air pollution
  6. New Catalan leader sworn in without reference to Spain
  7. Merkel and Putin revive dialogue in troubled times
  8. European companies putting Iran business on hold

Stakeholders' Highlights

  1. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  2. Centre Maurits Coppieters“Peace and reconciliation is a process that takes decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  3. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  4. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece
  5. Counter BalanceControversial EIB-Backed Project Under Fire at European Parliament
  6. Nordic Council of MinistersIncome Inequality Increasing in Nordic Countries
  7. European Jewish CongressEU Leaders to Cease Contact with Mahmoud Abbas Until He Apologizes for Antisemitic Comments
  8. International Partnership for Human RightsAnnual Report celebrates organization’s tenth anniversary
  9. Nordic Council of MinistersNordic Cooperation Needed on Green Exports and Funding
  10. Mission of China to the EUPremier Li Confirms China Will Continue to Open Up
  11. European Jewish CongressCalls on Brussels University to Revoke Decision to Honour Ken Loach
  12. Sustainable Energy Week 2018"Lead the Clean Energy Transition"- Register and Join Us in Brussels from 5 to 7 May

Latest News

  1. Zuckerberg and Trump top the EU's agenda This WEEK
  2. Integration of Syrian refugees in Europe needs scrutiny
  3. Bulgarian PM: No asylum reform without stronger border
  4. Eight countries to miss EU data protection deadline
  5. Italian populists to defy EU debt rules
  6. Commission 'playing tricks' with EU budget figures
  7. How France escaped EU legal action over chemical ban
  8. 'Connectivity' trumps enlargement at Balkans summit

Stakeholders' Highlights

  1. EU Green Week 2018Green Cities for a Greener Future. Join the Debate in Brussels from 22 to 24 May
  2. Nordic Council of Ministers12 Recommendations for Nordic Leadership on Climate and Environment
  3. Macedonian Human Rights MovementOxford Professor Calls for an End to the Anti-Macedonian Name Negotiations
  4. ACCAPeople Who Speak-Up Should Feel Safe to Do So
  5. Mission of China to the EUProgress on China-EU Cooperation
  6. Nordic Council of MinistersWorld's Energy Ministers to Meet in Oresund in May to Discuss Green Energy
  7. ILGA EuropeParabéns! Portugal Votes to Respect the Rights of Trans and Intersex People
  8. Mission of China to the EUJobs, Energy, Steel: Government Work Report Sets China's Targets
  9. European Jewish CongressKantor Center Annual Report on Antisemitism Worldwide - The Year the Mask Came Off
  10. UNICEFCalls for the Protection of Children in the Gaza Strip
  11. Mission of China to the EUForeign Minister Wang Yi Highlights Importance of China-EU Relations
  12. Nordic Council of MinistersImmigration and Integration in the Nordic Region - Getting the Facts Straight