Madeira – Tax haven with the help of the EU Commission

Commission as accomplice in the creation of tax havens

There is once again furore concerning a new tax haven scandal, which has just entered into the public domain: for 30 years, already extremely low corporation tax rates have applied on the Portuguese Island of Madeira. Up to 2013, companies were not required to pay any tax on their profits and even now the rate is only 5 %. In comparison: companies on the Portuguese mainland have to pay corporation tax rates of 21 %. The fact, that the European Commission itself has approved of these tax privileges has caused particular outrage.

Job creation through tax dumping?

The idea of this extremely low taxation is to attract companies to the Portuguese island, which subsequently would create jobs. By 2000, about 6,000 corporations, among them multinationals such as Pepsi or the mineral oil company Chevron, had settled on Madeira. But how many jobs were actually created? The European Commission stated for the first time in 2000 that in spite of tax breaks of about one billion euros only circa 1,000 new jobs had been created. Furthermore, the new companies frequently are only letterbox companies, which were only set up for the purpose of avoiding taxes and which are not in the slightest economically active. The journalists of Bayrischer Rundfunk (Bavarian Broadcasting) for example reported that about 800 companies are registered in one single building in Funchal (Avenida Arriaga 73-77). But that is not all: in some cases, dozens of corporations are represented by one single person. In one case, one single “managing director” represented no fewer than 300 companies. This also means that any information about newly created jobs has to be taken with a pinch of salt, as often dozens of “new jobs” are held by just one person.

European Commission does not react

Over the years, the Commission too has woken up to the fact that the aim to attract investments and to create new jobs on the basis of low tax rates does not work at all. In spite of this, the Commission time and again extended its approval of dumping tax rates: in 2002, 2007, 2013, 2014 and 2015.

MEPs are outraged

The new revelations caused absolute outrage with MEPs: Sven Giegold, finance and economy spokesperson for the Greens/EFA group in the European Parliament, for example urged the Commission to end its approval practices for special economic zones and to subject these to a tax check. EU representative Markus Ferber of the European People’s Party holds tax haven systems such as Madeira responsible for undermining the credibility of the EU in the fight against international tax havens such as Panama.

New scandal once again exposed by consortium of journalists

That the scandal surrounding the tax haven has been exposed is due to a consortium of journalists from Bayrischer Rundfunk (BR), the Austrian Broadcasting Corporation (ORF), the French Le Monde and the Spanish La Vanguardia. Journalists already played a key role in exposing other tax havens such as Panama, the Bahamas or Luxembourg and ensured that the tax preferential treatment of corporations and the super rich was brought to light.