EU tax policies still draining resources from developing countries, says report

By agency reporter
November 13, 2014

In the wake of the ‘Luxembourg Leaks’ investigation exposing the secret deals which have allowed multinational companies to dodge taxes on a massive scale, a new report reveals that governments across the European Union are failing to live up to their pledges to tackle tax abuse.

The report, Hidden Profits, from the economic justice network Eurodad, which includes Christian Aid, compares 15 EU countries’ performance on combatting tax dodging and ensuring financial transparency.

It finds that while some countries are better than others, those surveyed are all still failing to implement measures that would help end tax abuses that cost both developed and developing countries billions of euros every year.

Joseph Stead, Christian Aid’s senior economic justice adviser, said: “We’ve examined whether EU governments are delivering on their promises to fight tax dodging and financial opacity, and the result is very disappointing.

“Progress is extremely slow and some countries even seem to be moving backwards. There is also a lack of coherence; some countries talk a good game on wanting to support countries generate taxes, but a number of those we looked at have struck tax treaties with developing countries that have effectively forced down the tax rate in those countries.

“As we have seen with the Luxembourg Leaks scandal, while our leaders are failing to fix the tax system, multinationals continue to dodge taxes in Europe as well as in the world’s poorest countries, where income from corporate taxation is desperately needed.”

Measures called for by Christian Aid and other groups from the STOP Tax Dodging Campaign include country-by-country reporting to make multinationals reveal the profits made, and taxes paid, in every country where they operate. The exchange of taxpayer information between jurisdictions should be automatic, and there should be public registers of the identities of the beneficial owners of businesses to tackle tax haven secrecy.

A direct comparison of the 15 countries found that:

• Although the UK backs the creation of a public register of the beneficial owners of companies registered here, it emerged as a staunch opponent of country- by-country reporting when the EU considered introducing it in early 2014, and ultimately blocked the initiative.

• France is currently the strongest country on issues of transparency and reporting rules for multinational corporations and has actively championed the issue. Even so, there is not a coherent approach on tax and development; its vast range of tax treaties have a caused substantial lowering of developing country tax rates, meaning vital revenues are being lost.

• Germany, Luxembourg, the Netherlands, Spain and Sweden are all bad performers on transparency, either in relation to the lack of information they give about company ownership at the national level or because they are resisting EU-wide initiatives to promote transparency on company ownership. This secrecy is helping companies to dodge taxes and shift profits into tax havens.

• Spain has managed to negotiate the largest reductions in tax rates through its tax treaties with developing countries, which are then losing out on tax revenues.

This week, key negotiations about the global tax system take place on two fronts – in the EU, and at the G20 in Australia. At the EU level, there is deadlock between the Council of Ministers and the European Parliament over the introduction of registers of beneficial owners.

MEPs and a number of countries want such registers introduced, but Germany in particular regards them as an invasion of privacy. One point of contention between EU member states is that although the UK has backed such a register enthusiastically, it says it will not require the ownership of trusts to be revealed.

The issue is likely to be raised at the G20 summit, which starts on Saturday. Also under discussion will be a progress report from the Organisation of Economic Co-operation and Development (OECD) on measures to tackle corporate tax dodging.

The OECD Action Plan on Base Erosion Profit Shifting is looking at a range of measures, including addressing transfer mispricing, which involves subsidiaries of a multinational trading between themselves to move profits offshore to minimise their tax liability. Although developing countries suffer most from the practice, their involvement in the OECD process has been limited.

“Our report shows that many EU governments are refusing to give the poorest countries a seat at the table when the global tax standards are negotiated,” said Mr Stead. “Instead, they hide behind closed doors in rich country clubs like the OECD and the G20 and decide on policies that may work for themselves but fail the poor.

“But the lack of global cooperation between governments is a key reason why the tax system became such a mess in the first place. The tax system is in a state of emergency, and it’s time for governments to find ambitious global solutions that also work for the poor.”

* Read Hidden Profits here:


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