The scandals uncovered by Lux Leaks and Panama Papers have provided concrete evidence that corporations, banks and wealthy private individuals are systematically avoiding paying tax on vast incomes and profits. People are rightly outraged, since they are the ones left to pick up the tab.
What tax avoidance is costing us
Some EUR 1,000 billions are lost in the EU each year through tax fraud and tax tricks of multinationals and wealthy individuals. The money is lacking in areas where it is currently urgently needed, such as job creation, promotion of the economy, building of schools and universities, child care, care for the sick and elderly.
With EUR 1,000 billions it would be possible, for instance, to
- completely free Greece from debt 3 times over
- finance the EU annual budget 7 times over
- invest 40 times as much money in trans-European road and rail networks
- invest 90 times as much money in the Horizon 2020 EU research programme
- increase the European Social Fund 125-fold to combat unemployment and poverty
- invest 300 times as much money in universities
- invest 355 times as much money in EU development cooperation
- build 1,000 hospitals
- invest 1,100 times as much money in the EU employment initiative for young people
- invest 2,500 times as much money in the EU environmental programme LIFE to promote environmental projects and combat climate change
Profits for a few, at the expense of all the rest
Corporations, banks and ultra-wealthy private individuals that avoid their tax obligations are free riders. They generate profits thanks to functioning infrastructure, qualified employees, stable political circumstances and social harmony, but leave others to foot the bill.
Tax privileges for the super rich
Wealthy players, whose assets grow rapidly through tax avoidance, also benefit abroad from special rules and tax privileges. Foreign interests, such as those of multinational corporations, are given preference. Democratic deficits become entrenched since the maxim that “money rules the world” applies to laws too. Local residents are the ones to suffer.
Why global solutions are needed
In a globally connected business world, countries can no longer combat tax fraud and tax avoidance alone. A cross-border coordinated approach to combating tax avoidance and tax evasion is necessary. A key aim of that is to eliminate tax havens.
What are we calling for?
- Listing of beneficial owners in an international register
Constructions such as offshore companies need to be made transparent. That urgently requires a global financial register and the disclosure of the real ownership of companies. Currently offshore companies conceal their real (beneficial) owners and generally serve the purpose of tax avoidance.
- Sanctions for financial services providers and banks
Financial services providers and banks need to check certain criteria when offshore companies are founded. Failure to comply must result in significant sanctions in the future. Failure to reports transfers of assets and capital should also be penalised.
- An end to offshore companies
The opening of accounts for offshore companies should be tied to strict criteria or be prohibited, for instance if the beneficial owners are not known or no actual commercial activities are performed locally.
- Country by Country Reporting (CbCR)
Parent companies should supply key figures and information about their subsidiaries, for each country in which they operate. Information about profits, taxes, accounting methods, the location of business activities, number of employees, wage costs, turnover etc. can then be processed by the relevant tax authorities.
- Increase, rather than decrease, the human resources of tax authorities
- Increased international cooperation between tax authorities
As of 1 January 2017 information will be exchanged automatically between tax authorities across borders. That instrument needs to be used intensively and actively by the tax authorities.
- The creation of a Black List
Countries that are uncooperative and whose structures generally lack transparency should be placed on the black list. The list must satisfy the OECD standards as a minimum. Payments to tax havens must no longer be tax-deductible.
- Protection for whistleblowers
Whistleblowing, i.e. the unauthorised transfer of data, plays an important part in the fight against corruption, tax evasion and other commercial crimes. Employees who become whistleblowers need to be legally protected against criminal charges. When reaching the current decision on the EU directive on protection of trade secrets, it must be ensured that the confidentiality rights of companies are not disproportionately broad.