EU shaken by a number of tax haven scandals
For years, reports on large corporations and the superrich, who avoid paying tax by sometimes illegal tax constructions, have shaken the public. The EU announced to put an end to tax havens. However, what exactly has happened since due to the LuxLeaks case, tax privileges in Luxembourg came out into the open? A hearing of Commission President Juncker before the European Parliament provides more detailed information as to where the problems in the fight against tax havens really lie.
Commission President Juncker summoned to attend Inquiry Committee
Just recently, EU Commission President Jean-Claude Juncker had to answer questions before the so-called PANA Inquiry Committee of the European Parliament. This Committee deals with money laundering, tax fraud and evasion. The focus was on Juncker’s time as Luxembourg’s Finance and Prime Minister. During his time as member of the government, numerous special tax conditions were agreed with large corporations. Juncker shifted responsibility for these arrangements to the tax authorities. The government had not been competent for this. Juncker was lucky that nobody asked the question who was at the head of the administration.
However, the EU Commission President then talked about the initiatives, which had been initiated by the Commission. Twelve different proposals had been presented since 2014. Among them the Money Laundering Directive, new rules on the exchange of tax data as well as for more transparency or the introduction of country-by-country report for companies to enable the allocation of profits to the respective Member States. Further initiatives are to follow this year.
In doing so, Juncker does indeed refer to the actual problem: it is not the Commission who is the brakeman when it comes to draining tax havens. MEP Sven Giegold from the Greens even attests Juncker (since his change to the EU Commission) to have changed “Saul to Paul”.
Ministers from EU Member State acting as brakemen
Once again, the actual problem has to be sought at Council level, where Ministers of 28 EU Member States are gathered. In particular, the Council of Finance Ministers is time and again responsible for delays, the watering down of legislative texts and frequently also blockades.
For example, sometime ago, the Commission suggested to put tax havens on a black list. Countries included in this list, shall be put under political pressure. The European Parliament welcomed this proposal. However, not the Council of Finance Ministers: the text was watered down. Even if a countries determines a tax rate of 0 % for corporate profits, the majority of Finance Ministers still does not regard it as a reason to rate it as a tax haven. The main reason for this blocking attitude might be that many EU Member States themselves work with minimum tax rates and special conditions for large corporations and the superrich, to generate additional revenue at the cost of all other countries.
Hence, greater progress in draining tax havens will probably only be made when the national governments of the EU Member States have a change of mind.