Sunday

25th Aug 2019

Opinion

Grand Theft Tender? How €56bn went to tax havens

  • The countries with the largest portion of suppliers coming from tax havens are the United Kingdom, Spain, Poland, Estonia, Portugal and the Netherlands (Photo: European Parliament)

The Juncker Commission was struck by the Luxleaks scandal and Panama Papers but it did not deliver any sound solutions to money-laundering.

In the last 12 years, €56bn from public tenders around Europe went to tax havens and nobody did anything.

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

Tax haven-based companies win roughly five percent of value of public tenders throughout EU member states, according to a study by a consulting company Datlab together with researchers from University of Cambridge.

In this analysis they found about 10,000 government suppliers in the whole EU that are co-owned from countries like the Bermudas, Curacao or Cayman Islands. Countries officially blacklisted or greylisted as tax havens by the EU.

Lots of them are also based in highly-competitive (tax-wise) Switzerland and Lichtenstein.

These companies received public tenders worth about €56bn over past 12 years, almost doubling their share of the market over the last decade.

The countries with the largest portion of suppliers coming from tax havens are the United Kingdom, Spain, Poland, Estonia, Portugal and the Netherlands.

There are large discrepancies between countries.

On average, 5.5 percent of the value of government orders was won by companies located in tax havens. In Poland, out of each €1m, €62,000 was provided by a tax-haven company (6.2 percent).

More was only in the Czech Republic (6.8 percent), Spain (7.3 percent), Portugal (7.65 percent) and the UK (13.4 percent).

Central and eastern Europe is even worse off in terms of the proportion of tenders carried out by companies from tax havens in the total number of tenders. In EU countries the average was 4.7 percent, and in Poland – 9 percent. Only Lithuania had a higher rate, of almost 11 percent.

Are tenders from tax havens a bad thing?

Not necessarily. But awarding a public tender - say, from Spain to a Cayman Islands-based company generates two risks.

First, Spain might lose its money due to tax avoidance, as profits drift to the Cayman Islands instead of being taxed properly in a country where they were raised.

Second, because of the deliberate opacity of corporate formation in havens, there may be hidden beneficiaries or conflict of interest in the award of such contracts.

Picture a minister of infrastructure awarding tenders to a construction company in which he secretly has financial ties. This actually happened in the Czech Republic. Nobody wants such things to happen with public money anywhere.

How do tax havens actually work?

One of the primary methods is corporate profit-shifting.

This is where a multinational company registers its headquarters in a low-corporation tax jurisdiction and then books its profits there, rather than in the country in which it actually makes its sales.

This is what firms such as Google and Facebook have been doing in order to lower their global corporation tax bills.

A solution for governments is to unilaterally tax a multinational's revenues, while making allowance for its local costs, investments and exports.

Another option is to demand full and public transparency on the beneficiaries of offshore trusts. Acting in concert, the governments of the EU could bring serious pressure on many tax havens to comply.

Many tax havens, such as the Cayman Islands and Bermuda, are also British crown dependencies, giving the UK government itself considerable leverage if it chose to exert it.

On the one hand, the previous European Commission boasted that, since the beginning of its term, it has eliminated 123 trade barriers, which allowed for an increase in exports in 2018 by over €6bn.

On the other hand, Europe is still losing hundreds of billions of euros due to ineffective enforcement of international tax agreements.

Public procurement is the ideal ground, where governments can start pushing against the tax-haven abuse. Not only have they the additional motivation (risk of conflict of interest), but as buyer they also have a very strong leverage.

Maybe the new Commission under Ursula von der Leyen will push for this issue.

Governments are either unaware that they can forbid tax-haven registered companies taking part in their tenders, or turn a blind eye to this practice.

We can limit tax-optimising competition and this is a good first step in a true fight with tax havens and money-laundering as a whole.

Author bio

Piotr Arak is the head of the Polish Economic Institute, a public think tank in Warsaw.

Disclaimer

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

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.

Letter

Letter from the EESC on per diem article

The European Economic and Social Committee defends the system of "per diem" payment to its members for the work they do, as they recieve no attendance fees or salaries.

News in Brief

  1. Ocean Viking to disembark in Malta after ordeal
  2. Germany joins France in world outcry on Brazil fires
  3. British people lose faith in Brexit deal
  4. Brexit hardliners want further changes to EU deal
  5. German manufacturers confirm fear of recession
  6. Belgian socialists and liberals scrap over EU post
  7. Fall in EU migration leading to UK skills shortages
  8. Switzerland makes post-Brexit flight preparations

Facebook has to answer some tough questions about Libra

German MEP and member of the Economic and Monetary Affairs Committee, Markus Ferber, warns of four separate threats from Facebook's Libra. A good moment to kick off the debate would be this week's G20 summit.

Stakeholders' Highlights

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

Latest News

  1. Spain heading for yet another general election
  2. EU to discuss Brazil beef ban over Amazon fires
  3. 'Our house is burning,' Macron says on Amazon fires
  4. What happens when trafficking survivors get home
  5. EU states and Russia clash on truth of WW2 pact
  6. EU considers new rules on facial recognition
  7. EU to pledge Africa security funds at G7 summit
  8. Letter from the EESC on per diem article

Stakeholders' Highlights

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

Join EUobserver

Support quality EU news

Join us