By Don Quijones of Spain, the UK, and Mexico, and an editor at Wolf Street. Originally published at Wolf Street
The European Commission last year published its first ever tax-haven black list. On it was an eclectic mix of 17 far-flung jurisdictions including Panama, South Korea, the United Arab Emirates, Macao, Bahrain, Barbados, Namibia and Trinidad and Tobago, though eight of them, including Panama, have already been removed.
Conspicuously absent from the list were EU countries accused of facilitating tax avoidance, such as Luxembourg, Ireland, and the Netherlands. Also not included were British Overseas Territories or Crown Dependencies, despite being named in earlier EU lists and some being implicated in the Paradise Papers scandal. But that could be about to change.
According to a new report by The Independent, the screening process is set to restart in “early spring” for British territories including Anguilla, the British Virgin Islands and the Turks and Caicos Islands:
Other British territories – Bermuda, the Cayman Islands, Guernsey, the Isle of Man and Jersey – promised to try and address EU concerns to stay off the list, which will now be reviewed annually.
The Independent has been informed that as things stand it looks like Bermuda will be given a clean bill of health by the EU, but that outstanding questions remain for the Turks and Caicos Islands and Anguilla.
According to one recent study by Berkeley academic Gabriel Zucman, there is £1.4tn of “off shore wealth” located in the UK, Isle of Man, Jersey, Guernsey, Bermuda and Cayman Islands alone.
The City of London is not just a place where the infinite threads of global finance meet, it is also the center of a vast, secretive web of tax havens cast across the globe. The “City of London Corporation” itself has functioned for centuries as an offshore island inside Britain, even inside London, a tax haven in its own right. Each of the sprawling financial web’s sections – the individual havens in the Caribbean and elsewhere (all of them Crown dependencies) – trap passing money and business from nearby jurisdictions and feed them up to the City of London. This is arguably the central plank of its post-colonial business model.
But now that could be at risk. The timing of the EU’s threat to blacklist British tax havens is politically convenient, coming less than two months before crucial Brexit trade talks are scheduled to begin. According to spokespeople at the European Commission, decisions on which jurisdictions to blacklist are taken according to a strict and public criteria and are not subject to any political pressure or consideration in Brexit negotiations. But as The Independent points out, some officials privately acknowledge that the dynamic is shifting, with the EU seemingly willing to use the process as leverage and vowing to pursue the territories for revenue post-withdrawal.
A European Commission source said it was “significant” that none of the territories were mentioned in the joint EU-UK report setting out the phase one Brexit agreement last month. They went on: “The UK has always protected them in the past. That is not going to happen in future. We will go after them.”
The EU’s efforts to stamp out tax havens, in particular those connected to the City of London, would be laudable if it weren’t for the inconvenient little fact that three of the world’s 10 worst corporate tax havens identified by Oxfam are in the EU: The Netherlands (3rd), Ireland (6th) and Luxembourg (7th), most of whose tax-avoidance structures were put in place during EU Commission president Jean-Claude Juncker’s 18-year reign as Luxembourg’s prime minister.
In December the European Parliament agreed that none of these countries, or Malta, could be considered as tax havens. A Socialist group amendment identifying the four EU member states specifically by name was put to a vote but the proposal obtained 327 votes against, 327 in favor and 24 abstentions, which means it could not be adopted since there was no majority.
As such, according to the EU’s own lopsided criteria, the EU is not home to tax havens, despite the fact that the very text compiled by the parliament’s Committee of Inquiry into Money Laundering, Tax avoidance and Tax Evasion concedes that foreign direct investment in Malta amounts to “1,474% of the size of its economy,” while Luxembourg and the Netherlands combined have more inward investment than the US.
According to a team of researchers at the University of Amsterdam, the Netherlands is not just a corporate tax haven but one of the world’s largest, serving as a conduit for a staggering 23% of corporate investments that end in a tax haven. That compares with 14% for the UK, 6% for Switzerland, 2% for Singapore and 1% for Ireland. It is estimated that since 2005, nearly half a trillion dollars of U.S. corporate profits have been safely stashed in the Netherlands by household brands like Nike, Heinz, Caterpillar, General Electric, Time Warner and Foot Locker.
This inconvenient fact didn’t prevent the former deputy prime minister of the Netherlands, Lodewijk Asscher, from threatening a year ago to block any post Brexit trade deal if the UK doesn’t “firmly tackle” tax avoidance. The threat came just as the UK government announced that in the event of a hard Brexit, it was considering extending the City of London’s low-tax, light touch regulation regime to the rest of the UK.
But to what extent is the Netherlands itself tackling its own fiscal transgressions — the same transgressions that won it 3rd place in the Oxfam survey, just behind Bermuda and the Cayman Islands? The answer is likely to be “very little,” especially given that the EU doesn’t even consider the country to have transgressed.
Just as they — together with the UK — have done for years, the EU’s four non-tax havens will do everything they can to frustrate concerted EU action and protect their own tax regimes. And therein lies the crux of the EU’s crusade against the world’s tax havens: until it’s willing to get its own house in order, Brussels is in no position to preach to other countries, let alone police them.
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