Monday

16th Sep 2019

Opinion

Tax havens: need for an EU response to global problem

  • The current discrepancy of different corporate tax rates per member state (ranging from 12.5 percent in Ireland to 34 percent in France) distorts the internal market competition and creates all forms of 'mini tax heavens' within the EU (Photo: ptmoney.com)

The last decades were characterised by significant changes in international financial relations.

Growing financial flows and increasingly sophisticated financial instruments bear witness to the phenomenon.

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 mobility of capital on an international and unprecedented degree inspired the phrase 'financial globalisation'.

Financial globalisation is not only characterised by the use of sophisticated financial instruments worldwide, but also the gradual decoupling between financial flows and production.

We live in an age when the financial sector is becoming increasingly detached from the productive sectors, which is also one of the main reasons for the financial crises that have repeatedly shaken our societies.

In the process of financial globalisation, tax havens play a central role.

According to the United Nations Conference on Trade and Development (UNCTAD), about half of all the investments made by multinational companies originate in tax havens.

To quote an example, the Channel Islands (Jersey and Guernsey) have invested more in China than have Japan and the USA, whilst Mauritius was India's largest foreign investor.

As reported by ATTAC Switzerland, there are currently more than 700 tax havens around the world concentrated in three geographical areas: the Caribbean, western Europe and South Asia.

'Mini tax havens' within EU

The right to levy taxes is a necessary attribute of each sovereign state, hence collecting taxes is the competence of each individual EU member state.

It is also for national authorities to deal with those who do not pay the taxes they owe. However, tax evasion is a complex problem which extends beyond borders. EU countries need to work closely together to tackle these problems at home and abroad.

A determined policy response is needed at all levels to crack down on tax havens or at least reduce their effects.

From a strategic and long-term perspective, the EU must finally take steps to adopt common rates for corporate and income taxes, as well as VAT.

This should not be a national competence any more. The current discrepancy of different corporate tax rates per member state (ranging from 12.5 percent in Ireland to 34 percent in France) distorts the internal market competition and creates all forms of 'mini tax heavens' within the EU.

Moreover, the EU should adopt common incentives for re-investment of corporate profits within its territory, and also harmonised incentives to attract foreign direct investment.

Simple and predictable taxation is the best incentive against tax evasion.

In the shorter term, Europe must take action to tackle all forms of tax havens within its own territory.

The EU and the individual member states must adopt frameworks to exchange all information they possess on the income or financial accounts of individuals residing in them.

The EU member states must become more effective in recovering claims for taxes, customs duties and certain fees, as well as taxes on income, capital and insurance premiums.

They must cooperate to combat VAT fraud through the use of information exchange systems to alert other EU countries of fraudulent activities.

Most important, the EU and its member states must take decisive action at international level.

They should not hesitate to impose sanctions on overseas countries that promote tax evasion against its own interests.

The EU is a global economic giant, it posses immense negotiating powers and has huge leverage on smaller countries all over the world.

Europe should further make best use of the instruments of international organisations. For instance, the Organization for Economic Cooperation and Development (OECD) has set up a global information-sharing scheme, the Common Reporting Standard.

That standard calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.

Apart from sticks, European countries must also use carrots in a co-ordinated manner.

They should offer a time limited tax amnesty to all funds repatriated to its member states from tax havens.

Overseas countries that drop their tax evading regimes should be rewarded through preferential trade and investment terms. Whistle blowers and all parties revealing off-shore fraud should also be rewarded in a generous manner.

Political gains

The actions proposed above might seem politically difficult, but might also prove a boon for the ones who would realise them.

They could appeal to voters on the left, who are appalled by corporate greed, and also voters on the right who wish a stronger reaction against crime and corruption.

They could further ensure additional public revenues to be allocated for social policies and public investments. In the bigger picture, they could help to reverse the tide of populism, anti-elitism and euroscepticism which has swept our continent.

Author bio

Yannis Karamitsios is co-founder of Alliance4Europe.eu, which is attempting to get three million previous non-voters to vote in the May 2019 European elections, and Elina Morhunova is a international business lawyer based in Vilnius.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

Are art 'freeports' tip of EU tax avoidance iceberg?

MEPs have raised concerns about the risks presented by Le Freeport, a 22,000 square meter high-security facility located near Luxembourg airport, where goods can be stored with confidentiality - and without being taxed.

EU states loosen grip on tax havens

Finance ministers removed eight entities from the tax havens blacklist, while ruling out more transparency or sanctions - prompting criticism from tax-campaigning NGOs such as Oxfam.

The EU's tax haven blacklist - impressive or impotent?

One year ago, the European Union published its first ever blacklist of tax havens. It is crucial that EU governments help end the era of tax havens to ensure the billions currently hidden from public coffers.

Stalling on VAT reform costing billions, says Commission

German media outlet Correctiv, along with other newsrooms, have revealed how criminals annually cheat EU states out of billions in VAT fraud. The EU Commission says solutions exist - but member states refuse to budge on tax unanimity.

Luxembourg's cannabis legalisation is EU opportunity

Luxembourg will be the first European country to legally regulate the production, sale and consumption of cannabis (the Netherlands has a policy of de facto regulation of sale and consumption only), with all the implications this holds.

News in Brief

  1. Nearly 100 refugees evacuated from Libya to Italy
  2. Juncker to meet Johnson on Monday
  3. First Hungary 'Article 7' hearing set for Monday
  4. Vestager picks Danish EU ambassador as cabinet head
  5. Commissioner hearings will start 30 September
  6. Italy says EU countries agree to take in rescued migrants
  7. Germany to organise Libya conference on arms embargo
  8. European Parliament to support another Brexit delay

Defending the defenders: ombudsmen need support

Ombudsmen are often coming under attack or facing different kinds of challenges. These can include threats, legal action, reprisals, budget cuts or a limitation of their mandate.

Stakeholders' Highlights

  1. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  2. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  3. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  4. Nordic Council of MinistersNo evidence that social media are harmful to young people
  5. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  6. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  7. Nordic Council of MinistersEducation gets refugees into work
  8. Counter BalanceSign the petition to help reform the EU’s Bank
  9. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  10. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  11. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  12. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat

Latest News

  1. Brexit and new commission in focus This WEEK
  2. As recession looms Europe needs more spending
  3. How should the EU handle Russia now?
  4. EU defence bravado criticised by auditors
  5. Central European leaders demand EU Balkan accession
  6. Luxembourg's cannabis legalisation is EU opportunity
  7. The Catalan National Day has been a success. Why?
  8. Why I'm voting against the von der Leyen commission

Stakeholders' Highlights

  1. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  2. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  3. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  4. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  5. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  6. Nordic Council of MinistersNordic commitment to driving global gender equality
  7. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  8. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  9. Nordic Council of MinistersNordic talks on parental leave at the UN
  10. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  11. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  12. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID

Join EUobserver

Support quality EU news

Join us