Iceland PM defiant, EU weighs reaction to tax leaks

Opposition MPs are also pushing for a no confidence vote, while Iceland’s president, Olafur Ragnar Grimsson, cut short a US trip to come home due to the crisis.

The backlash comes after journalists got hold of leaked files from a Panamanian firm which has for the past 40 years created shell firms for elite clients to help them pay less tax.

The leak revealed that Gunnlaugsson had hidden financial interests in Icelandic banks which collapsed in 2008 and that he may have made personal gain from government decisions on recovery of lost funds.

He has said he won’t go and walked out of a TV interview on Monday saying that questions about his private life were “inappropriate.”

His defiance was matched by other VIPs named in the so called Panama Papers affair.

When asked by media on Monday if British PM David Cameron had hidden money from the taxman, his spokeswoman said: “That is a private matter.”

The question came after revelations that his late father had used a Panamanian law firm, Mossack Fonseca, to create offshore firms.

The European Commission also leapt to the defence of Spanish commissioner Miguel Agnes Canete after it came out that his wife had created an offshore entity.

The commission said that, under Spanish law, the entity had nothing to do with him and that his EU code of conduct declaration is correct.

The commission’s spokesman, Margaritis Schinas, scolded journalists in a press briefing, saying the commission “won’t be lectured” on tax probity.

A senior EU official also complained to EUobserver about a headline, which said Canete was “implicated” in the affair.

“How about ‘indirectly implicated?’,” the official suggested.

In Moscow, a spokesman for Russian leader Vladimir Putin said the leaks are a form of “Putinophobia” designed to create “instability” ahead of parliamentary elections.

The leaks had indicated that Putin’s closest personal friends are involved in a $2 billion corruption racket.

In Kiev, president Petro Poroshenko said: “Having become a president, I am not participating in management of my assets, having delegated this responsibility to the respective consulting and law firms. I expect that they will provide all necessary details.”

The leaks also indicated that Poroshenko tried to hide personal wealth when the war in east Ukraine was going badly in August 2014.

Investigations announced

The leaks, published by a German-led group of international media on Monday, have prompted several EU member states to announce investigations into potential tax fraud.

The list on Monday evening included Austria, France, the Netherlands, Spain, Sweden, and the UK.

Aside from big names, including also football stars and royals, the leaks showed that thousands of wealthy Europeans - 732 individuals in Belgium, for instance - used Mossack Fonseca’s asset-hiding services.

They showed that EU jurisdictions - especially Cyprus, Luxembourg, and the UK - hosted huge numbers of offshore entities created by the Panamanian lawyers.

They also showed that EU banks - such as HSBC and Societe Generale Bank & Trust Luxembourg - were among the most active in creating offshore structures for clients.

Commenting on Monday, EU competition commissioner Margrethe Vestager told Danish paper Finans Borsen the revelations are probably "the tip of the iceberg" because there are many other companies which offer similar services to Mossack Fonseca.

Call to action

The scandal also prompted MEPs and civil society leaders to call for EU-level action.

Anneliese Dodds, a British centre-left MEP specialising in tax matters, said that “tax havens, and the companies that use them … [should] be banned from accessing EU funds.”

The European Network on Debt and Development, a Brussels-based NGO, said: “If countries introduced registries where the public can see who owns the companies operating in our societies, it would make it impossible to set up fake companies to hide dirty money.”

Transparency International EU (TI) said: “Nothing short of public transparency about corporate ownership can stop the rot.”

TI and British-based charity Oxfam urged the commission to oblige multinationals to disclose tax and financial data in the 28 EU states on a country-by-country basis.

The current bill, which is going through the EU mill, calls for aggregate EU reporting only and limits obligations to firms with a turnover of at least €750 million.

The reference to multinationals comes after a previous scandal, Lux Leaks, showed that some EU states’ deals with global firms like Amazon and Starbucks saw them pay next to no in tax in Europe.

EU weighs options

Pierre Moscovici, the EU financial affairs commissioner, on Monday, said the Panama Papers revelations argue in favour of stronger EU laws.

"It is vital that multinational companies pay their taxes where they generate profits," he told the RTL broadcaster. "I am in favour of total transparency for these accounting and fiscal data," he said.

Other EU personalities were more cautious, however.

Vestager, in her Finans Borsen interview, said her mandate is limited to going after EU states that break the rules not individuals.

Alain Lamassoure, a French centre-right MEP who works on tax avoidance, said he wants more information before deciding how to proceed.

EU officials told press in Brussels on Monday that existing legislation in the field would be enough if it was properly implemented.

“It is impossible to say at this stage what is legal or not legal … We have to wait for further revelations and see the documents to see if harmul activities were conducted after new rules came into place,” one EU contact said, referring to EU laws passed after the 2008 to 2011 banking crisis.

“If fiscal optimisation prevented states from getting revenues they are due, we will will see what we can do,” the official added.

Paying the cost

Susana Ruiz, a tax policy advisor at Oxfam, noted that tax avoidance and evasion have a harsh cost.

She said “poor countries lose $170 billion” a year to tax-dodging schemes, while “400 million people don’t even have access to basic healthcare.”

Mark Gaelotti, a US scholar of Russian affairs, said the Panama Papers leaks give an insight into Kremlin rule.

“When Putin wants to reward his friends, he allocates them contracts and monopolies they can milk for all their worth. But in return, they know that likewise they are rich only so long as they have political power and Putin's goodwill,” he said.

He noted that according to INDEM, an independent think tank in Russia, corruption costs Russian people up to a third of the country’s GDP.

“Put it another way: Corruption by the Russian elite could be costing the country up to six times as much as all the sanctions imposed by the West since Russia invaded Crimea [in Ukraine],” he said.