European Parliament’s Committee of Inquiry: sharp criticism on cesspool Madeira

4,500 of 6,000 companies left Madeira after expiry of special conditions

Until 2011, companies registering in Madeira did not pay any corporate tax – officially approved of by the European Commission. European Parliament did invite representatives of Madeira to attend a hearing before a Committee of Inquiry and demanded more detailed information.
Rui Gonzalves, a representative of Madeira told the Committee that by 2011 about 6,000 companies (mainly from the finance sector) had settled on the island. However, following the expiry of special measures such as a corporate tax of 0 % and VAT reductions agreed with the EU Commission, most companies left Madeira again. Today, just 1,500 companies had remained on the island. The corporations had moved their seats to other countries such as Austria, Luxembourg, and The Netherlands or outside the EU, to Macao, Hong Kong or Miami (USA).
The European Commission had granted the special conditions for Madeira as early as 1987 because the island would be an ultra-peripheral region, which needed support for its economic development and which had to overcome structural problems.
According to Gonzalves, Madeira resp. Portugal would adhere to EU regulations. Hence, the country would participate in information exchange; there was transparency and controls were in place. Portugal had even set up a special unit to identify companies, where suspicious financial flows had been noticed.

One person employed by 1,000 companies at the same time

MEP Jeppe Kofod criticised that according to reports individuals existed, who were registered as managing director or director with hundreds of these (letterbox) companies. Committee chair Werner Langen recalled that there had even been once case in Panama, where one single person had “looked after” 1,000 companies. Hence, these individuals are supposed to be recorded multiple times in the employment statistics. Against this background, the figures shown over the past years in respect of development of both economic power and employment had to be questioned. Therefore, MEP Heidi Hautala came out in favour of an impact assessment for Madeira to establish whether the objectives, which were linked to the special conditions, had in fact been achieved.
Madeira’s representative commented that employees were basically allowed to work in several companies at the same time. However, following the expiry of the special regulations in 2011 it was no longer possible for one individual to be active in hundreds of companies simultaneously.

Need for improvement concerning the implementation of the Money Laundering Directive?

Gonzalves was also asked whether Madeira resp. Portugal had already implemented the 4th Money Laundering Directive. According to MEP Gomez, Madeira had not published any statistics on the money flows to other countries between 2011 and 2014, which actually had been mandatory since the 3rd Money Laundering Directive. The Portuguese speaker informed the Committee that his country wanted to make further progress in this field and she also wanted to who was behind financial flows. In future, a register shall show the beneficial owners. Madeira was a small island, which was a targeted choice by companies to hide things which are happening in big, richer countries.
The Portuguese representative finally commented that Madeira was certainly not a tax haven. This was sharply criticised by several MEPs. Madeira would fulfil all criteria to be called a tax haven – for example when it came to setting up companies.
Following the hearing one can expect that Madeira will find herself in the Inquiry Report on Money Laundering, Tax Avoidance and Tax Evasion. This Report is expected by the end of the year.