Wednesday

17th Oct 2018

Opinion

Why the EU needs to end the era of tax havens

It is a simple figure that highlights the inequalities in our world: the 62 richest people own as much as our planet’s poorest 50 percent, a new Oxfam report published for this year’s World Economic Forum (WEF) has shown. It also has revealed that not only are the rich getting richer, but devastatingly, the poorest are being hit the hardest.

Inequality has a huge impact on the world’s poorest people - who mostly live in developing countries. Inequality deprives them of the benefits of growth, keeps quality healthcare and education out of reach, and prevents them from lifting themselves out of extreme poverty, which is a basic right.

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  • British Virgin Islands: Tax haven deprives governments of the revenues they need for societies to function properly (Photo: JaguarJulie)

The European Union has a duty to rebalance our deeply unequal world. Policies need to be implemented that are consistent with the EU’s core values: equality and solidarity. The European Commission has a chance to lay the foundation for this with a new tax package that’s being presented on Wednesday (27 January).

Inequality often finds its roots in political and economic systems designed by the powerful for the powerful. An example of this is Davos, where every year the world’s most exclusive club of rich, influential individuals and large company representatives gather to debate the future of our global economy.

Elephant in the room

It is tax avoidance that’s the elephant in the World Economic Forum (WEF) room. Oxfam reviewed more than 200 companies, including the world’s 110 largest firms and WEF’s corporate partners, and found that nine out of ten of these companies have a presence in at least one tax haven.

And it gets worse. IMF data shows that corporate investment in tax havens almost quadrupled between 2000 and 2014. This shows how governments have left enough loopholes for companies and rich individuals to weave through, fuelling a race to the tax bottom in order to attract investment.

In a nutshell: this isn’t good as it deprives governments of the tax revenues they need for their societies to function properly.

Tax dodging leads to substantial losses in tax revenue for those countries where the companies actually operate and make their profits. According to a UN estimate, developing countries lose at least $100 billion (€923.1 billion) annually through tax dodging by multinationals. These revenues are vital resources to finance essential public services for citizens, like schools and hospitals.

It is, admittedly, a challenge of global proportions to tackle inequality, to make rich individuals and big business pay their fair share to society. But it needs to happen. Governments must work together to fix the skewed international tax system, and an important first step would be to end the era of tax havens.

Window of opportunity

At the European level, institutions have committed publicly to tackle tax evasion and tax avoidance. But despite initial proposals by the European Commission, these are not yet concrete efficient actions. The upcoming anti-tax avoidance package (ATAP) offers a new window of opportunity for clamping down on tax dodging.

The EU intends to quickly implement international standards, as proposed by the OECD last year and endorsed by G20 leaders in November. However, these standards are failing to address the problem, in particular for developing countries.

The good news is that commissioner Pierre Moscovici committed earlier this month in parliament to go beyond such weak international standards. Indeed, the commission tax package will include a European strategy aiming at listing tax havens along with counter-measures.

Still, as the implementation of this strategy will lie in the hands of member states, it is debatable whether the EU will succeed in putting its own house in order, i.e. bringing into line its own members considered tax havens.

Also, when it comes to binding regulation proposed in the new tax package, the hands of the European Commission are tied because member states are running the show. They need to show their commitment to tackling tax avoidance now, as so far they have been pushing for the lowest common denominator.

Resistance from member states would be bad news for tax transparency. Indeed, their commitment will be needed to introduce further measures – measures that would force companies to disclose where they generate profit and where they pay tax. Such rules, known as public country-by-country reporting, are being discussed at the EU level.

Tax transparency crucial

In addition, intense lobbying has been deployed by companies that want to keep this information confidential. But without public disclosure, citizens and civil society will not be able to hold multinationals to account for their tax practices.

Moreover, developing countries will be unable to scrutinise global tax arrangements of multinationals operating in their territory. Tax transparency is, therefore, crucial.

The European Parliament has voted four times in favour of legislation on country-by-country reporting – now it is up to member states to adopt this tax transparency tool as soon as possible.

Citizens are ready for change: eight out of ten Europeans say laws need to change to clamp down on the use of tax havens, as a poll published last November shows. So what are our European leaders waiting for?

Aurore Chardonnet, Oxfam EU policy advisor for inequality and taxation.

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