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Is the EU ready to take on tax havens at home and away for €1 Trillion Prize

Added 05/Apr/12

By Alex Marriage,

With the €1 Trillion the EU governments lose each year to tax dodging at stake. The prospect of a debt ridden jobless future has EU the asking questions. DG TAXUD the tax arm of the EU civil service will prepare a communication by December on the broad topic of tax havens and unfair tax competition.

One facet of this problem is double non-taxation, this happens as countries try to divide the proceeds of trade so companies and individuals don’t get taxed twice. However many have taken advantage to pay nothing at all. Until May DG TAXUD is seeking the views of people and organisations on double non taxation the results will feed into the Commission’s communication. The language is encouraging but Taxud’s hands are probably tied because whatever it and the European Parliament suggest on tax any member state can veto. This veto does not apply to ongoing measures to promote financial transparency through measures such as  Anti-money Laundering reform and country-by-country reporting.

The UN vs OECD: Representativeness and policy positions

The UN Represents 192 countries and most of the World population the OECD 34 Countries and only about a fifth the world’s population. No one is saying that the UN is perfect and agencies are more effective that others. However most developing countries want the UN Tax Committee to have more say. Understandably the rest of the World are increasingly tired of the OECD’s undemocratic dominance of international tax policy. Especially when its transfer pricing standards and the Global Forum process with which it is very closely associated are so ineffective. So many developing countries are calling for the UN Tax Committee to have more power. The Indian Government has made this point clearly in a letter to the OECD .

Not only does the UN Tax Committee have a broader membership in a crucial area it proposes a much more developmentally friendly approach. The UN Tax Commitee supports a source based approach which involves taxing revenues where they are made whereas the OECD favours a residence based approach taxing income where the  person or company is based.  An ideal method would be a hybrid of the source and residence based approaches but with preference generally applying to source based approaches countries.

Vested Interest 1- Democracy 0

The result of the UN vs OECD standoff could have a bearing on the EU’s upcoming clash with the tax havens. Pundits question the Union’s will to win. The EU wants international cooperation to tackle tax havens outside its shores but entrusts this role to the OECD an organisation that no longer consider there to be any tax havens in existence. Meanwhile The European Council) is blocking an enhanced role for the UN Tax Committee which would bring in many more states, and promotes better solutions to tax dodging.

Unfair tax competition effectively makes open democratic decisions about tax rates impossible. The EC and European Parliament want to tackle tax havens but they can be vetoed by tiny tax haven Luxembourg and for that matter the UK, the bad mother hen, which lays tax havens, before using its own offspring to feed the city of London. This does little for the population (in my home) country where despite the odd bit of insincere ‘banker bashing’ from leaders the City pays the piper and calls the tune in British politics. The Financial sector’s political donations drown out the 79% of the British population who want to see tax dodging curbed. Politicians naming no names have just pretended to listen. Chancellor George Osbourne says I regard tax evasion and, indeed, aggressive tax avoidance, as morally repugnant, the very same week his government sign a deal with Switzerland which lets British tax dodgers of the hook.