Hidden Profits: The EU's role in supporting an unjust global tax system 2014
This report – the second in a series of three annual reports – brings together civil society organisations (CSOs) in 15 countries across the EU. Experts in each CSO have examined their national governments’ commitments and actions towards combatting tax dodging and ensuring transparency.
This year, for the first time, each country is also directly compared with its fellow EU member states on four critical issues: the fairness of their tax treaties with developing countries; their willingness to put an end to anonymous shell companies and trusts; their support for increasing the transparency of economic activities and tax payments of transnational companies; and their attitude towards letting the poorest countries get a seat at the table when global tax standards are negotiated. This report does not only cover national policies, but also governments’ positions on existing and upcoming EU level laws and global reform proposals.
Overall, the report finds that:
• Practices which facilitate tax dodging by transnational corporations and individuals are widely used, in some cases so governments can claim to be ’tax competitive’. This is creating a ‘race to the bottom’ – meaning that many countries are driving down standards to try to attract transnational corporations to their countries. Some of the countries that have been most successful in attracting companies – Ireland, Luxembourg and the Netherlands – are also currently under investigation by the European Commission for making competition-distorting arrangements with transnational companies behind closed doors. Several countries also allow ‘letterbox’ companies and other structures to be set up (so-called Special Purpose Entities – SPEs) which can, and often are, misused for tax dodging purposes.
• European countries have a high number of tax treaties with developing countries, with France and the UK leading the pack respectively with 72 and 66 of such treaties. These treaties often push down the taxation levels on financial
transfers out of developing countries, and thus create routes through which transnational corporations can avoid taxation. Of the countries covered by this report, Spain, the UK and Sweden have negotiated the biggest reductions in
developing country tax levels through their treaties. Despite several studies proving the negative effects these treaties can have on developing countries, only the Netherlands out of the 15 EU governments covered in this report has so far produced a ‘spillover analysis’ to estimate the impact of these treaties on the world’s poor. Ireland is set to publish a similar study that will hopefully also focus on its tax treaties in the coming months.
• Most EU countries studied have failed to expose the true – or beneficial – owners of companies, trusts and similar legal structures operating within their countries. Some countries have done away with harmful structures that previously helped to hide identities, but are now in the process of creating new problematic structures. Both the Czech Republic and Luxembourg recently decided to abolish anonymous bearer shares – an instrument that has received much international criticism. At the same time, both countries are introducing ‘trusts’ into their national legislation, potentially providing new options for anonymous ownership that might replace the ones that are disappearing.
• Although EU governments have introduced country by country reporting for banks – meaning they will have to adhere to stronger transparency rules – many countries are still reluctant to do this for transnational companies in other sectors.
• Although many are undecided, none of the EU governments studied actively support the establishment of an intergovernmental body on tax matters under the auspices of the United Nations. Such a body would allow developing
countries to have a say on global tax standards instead of the current situation, where the Organisation for Economic Development and Co-operation (OECD) is the dominant decision-making body, despite the fact that it only
represents wealthy countries.
A direct comparison of the 15 EU countries finds that:
• France is currently the strongest country on issues of transparency and reporting rules for transnational corporations and has actively championed the issue. However, recent developments seem to indicate the government may be back-tracking. Its vast range of tax treaties have also caused substantial lowering of developing country tax rates. No analysis of these impacts is planned.
• Germany, Luxembourg, the Netherlands, Spain and Sweden received a red light on transparency, meaning that they have a lack of transparency of company ownership at the national level or are resisting EU-wide initiatives to promote transparency on company ownership.
• Spain has managed to negotiate the largest reductions in developing country tax rates – an average reduction of 5.3 percentage points - through its tax treaties with developing countries.
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To read a summary of the report, please click here.
To read the country comparison table click here.