EU Action on Tax Avoidance: Ramped Up a Gear

So many of the problems facing us today are international in scale. Even issues that might appear local, such as the independent bookshop on your high-street closing down, have an international dimension. Tax avoidance is when wealthy individuals or global corporations hide their earnings and profits in order to escape paying tax in the countries where they work. Multinational corporations can afford the expensive lawyers and accountants that are needed to exploit loopholes and shift profits between different countries. This means that companies, such as Amazon, end up paying far fewer taxes than your local book shop, and this impacts at the local level in terms of what your high-street looks like, and what your day to day experiences are. 

International problems require international solutions, and the EU is best placed to tackle tax avoidance. In the European Parliament, following  a successful call from the Greens, we have just established the Panama Papers Inquiry Committee, to investigate the recent scandals coming out of Panama-based law firm Mossack Fonseca. It showed how just one law firm helped clients launder money, dodge sanctions and evade taxes. Our committee, of which I am to be a full member, will assess whether member states failed to enforce EU rules on anti-money laundering or failed to alert each other and share information when they suspected tax evasion. We will identify the loopholes which exist, and make steps to close them. Ultimately we need to see all tax havens shut down and for the states and jurisdictions which make their money this way to have support transitioning to ethically sound local industries.

Meanwhile the European Commission is very active in the area of enforcing competition law to tackle tax avoiders. Commissioner Vestager, the Commissioner for Competition, has recently taken three very important decisions on unfair competition in Europe. Her and her team have published their decision on Belgium’s excess profit scheme, and have also published their decision to open investigation into transfer pricing arrangements on corporate taxation of McDonalds (Luxembourg).  The latter follows on from some a huge investigation led by trade unions campaigning at EU level to expose the tax loopholes used by the fast-food giant. They will also soon publish their decisions on Starbucks (Netherlands) and Fiat (Luxembourg). In May they also clarified the Commission’s application of State aid rules to tax rulings on the basis of decisions taken in the Notion of Aid Notice, and have also produced a working paper on state aid and tax rulings. State aid – when a government gives a company favourable rates, taxation, subsidies, or benefits – has gone hand in hand with tax rulings – aka sweetheart deals – in Europe. This working paper offers a summary of the different types of tax rulings that she has investigated, in order to ensure that all actors are treated the same.

Earlier this year my colleagues and I wrote to Commissioner Vestager to ask her to investigate the tax deal struck between George Osborne and Google, which was exposed in January. I was delighted that several constituents wrote to me at this time, asking me to do this. This agreement, which was for a paltry £130 million tax out of £6.5bn revenue, provided an economic advantage for Google and we believe that this could constitute illegal state aid. We received a prompt response from the Commissioner, and sent a further letter outlining where we judged EU competition laws to have been breached. She has replied that, ‘the European Commission has launched an inquiry into the tax ruling practice of all Member States including the UK under EU State aid rules’, and this is very encouraging. Her team of experts are currently assessing the information that we provided, and they will follow up if they have indications that EU State aid rules are not being complied with.

Far from being a faceless bureaucrat, Commissioner Vestager will come to the Economics committee, of which I am a member, at the end of June, for one of her regular discussions. She will further explain how she is directly and publicly going after companies who are dodging taxes. I hope at that stage the UK will still have its place at the EU table because without a doubt this is the best place to be to tackle tax avoidance and corporate power.

Brexit and the Panama Papers

The two biggest news stories of the week are the government’s decision to spend public money on lobbying for its pro-EU position in the referendum and the revelations from Panamanian legal company Mossack Fonseca about the nefarious tax affairs of the global elite – the Panama Papers. So would the secrecy of the rich and powerful be better protected in or out of the EU?

The overseas territories and Crown dependencies that lie at the heart of the global network of tax avoidance and money laundering are a particular British problem. Most countries have seen their former colonial possessions become independent, or allow them a status as part of their own territory. Only the UK and Netherlands have offshore territories that exist in a legal limboland that facilitates dubious economic activity. Consequently there is little sympathy amongst other EU countries for protecting these post colonial anachronisms.

Although it is right that the Prime Minister has been vilified for his refusal to be open with the electorate, in fact what matters politically is whether his family’s use of secrecy jurisdictions has influenced his decisions on the policy which should be taken in the interests of the country. This week’s reports that David Cameron ‘argued to water down transparency rules over trusts’ suggest that there is conflict of interest that will not be resolved by the Prime Minister publishing his tax return.

Cameron is part of a tiny class of the super-wealthy who disdain the little people who willingly (or unwillingly) pay their taxes but do not have the resources to avoid them. This is why evidence that Cameron intervened to water down the effect of EU transparency rules on trusts is so damaging.

This week a letter to then European Council president Herman van Rompuy was leaked: it indicates that Cameron intervened personally to ensure that trusts like the one he had benefited from that was registered through legal company Mossack Fonseca, should be treated differently to companies in anti-money laundering rules.

In response to this my good friend and colleague Judith Sargentini, Green MEP for the Netherlands who was lead negotiator for the Parliament on the money laundering directive, made clear that she was aware of the UK blocking greater transparency over money laundering and that she had personally warned that it could create a loophole for tax dodgers.

The leaked van Rumpoy letter proves two things. First, that this government’s claims to be leading on tackling tax avoidance are entirely hypocritical. And second, that given the history of both the U.K.’s financial sector and this government’s leading figures, if we are looking for genuine solutions to the obscene behaviour of global elites we would be better off looking to Brussels then Westminster.


You may like to sign our petition to David Cameron on Panama Papers.