The IFC Economic Report discusses the legitimacy and relative strengths and weaknesses of the EU tax blacklist with Petr Ježek, MEP and Chair of the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance.
The IFC Economic Report discusses the legitimacy and relative strengths and weaknesses of the EU tax haven blacklist with Petr Ježek, MEP and Chair of the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3). We also review the challenges the EU is facing in implementing region-wide corporate tax harmonisation and ask Mr Ježek about the issues the Committee aims to tackle as a matter of priority in the coming months.
IFC: How would you define a non-cooperative tax jurisdiction (or tax haven), and what chances are there that a common international consensus on its definition can be reached and then implemented on a sustainable basis?
We now have clear EU criteria as to what constitutes a non-cooperative jurisdiction, which enabled the EU to establish, for the first time, an EU list of non-cooperative jurisdictions. These criteria relate to tax transparency, fair taxation, the implementation of OECD BEPS measures and substance requirements for zero-tax countries.
At international level, the OECD also has its list of non-cooperative jurisdictions, which contains countries that did not make commitments to transparency and exchange of information.
In both cases, I believe proper implementation and monitoring of the listed countries is essential for these lists to fulfil their objectives and maintain their credibility.
IFC: Is the EU tax haven blacklist doing the job it was originally designed to do and why it is limited to third countries?
The EU blacklist of tax havens is one powerful instrument to put pressure on those countries that we consider to be tax havens. An objective blacklisting process, combined with meaningful sanctions is an essential step towards ending tax havens. The European Parliament has long been calling for this list and thus its publication certainly has to be welcomed.
But, to be credible and to restore confidence in the EU’s fight against tax havens, the blacklist must contain the right names and be regularly updated in a transparent and objective manner.
I believe this instrument should remain dedicated to third countries, as we have other EU instruments to deal with potentially harmful tax jurisdictions within the EU. For example, in March this year, the Commission used the European Semester country reports to identify seven EU countries as potentially facilitating tax avoidance by multinationals. Moreover, the Code of Conduct group´s main task consists of reviewing national tax legislation to find out if they can be deemed ‘harmful’ to tax fairness and EU tax competition. Its functioning can certainly be improved and must be more transparent, but the tools to tackle harmful tax regimes in the EU already exist, and cannot be the same as those used for third countries.
IFC: Many commentators would claim that finance ministers deciding the final blacklist will be swayed by their own political considerations. The UK, for instance, is keen to preserve its good working relationship with the Crown Dependencies, especially with Brexit imminent. Are you concerned at the criticism that the process for determination of a non-cooperative tax jurisdiction (or haven) lacks transparency and is also subject to too much political interference? What steps can be taken to restore trust and credibility into the process?
As I said, to be credible and to restore confidence in the EU’s fight against tax havens, the EU backlist must contain the right names and be regularly updated. More importantly, it must rely on objective and transparent criteria. The European Parliament, in its PANA committee report, deplored the lack of transparency surrounding the compilation: the lack of information about the criteria for adding a country to the list, and more importantly for its removal, has undermined the credibility of the blacklist.
I believe blacklisted jurisdictions must face consequences in the form of dissuasive sanctions, while those that have made commitments must follow up on them quickly and credibly. We should have access to the commitments made by those countries.
IFC: If the EU tax haven blacklist lacks clear criteria, should it be published? The damage it causes to (usually small) island states’ reputations, if unmerited, seems very unfair.
The EU tax haven blacklist does not lack criteria. I believe it is a powerful instrument to put pressure on those countries that we consider tax havens, and can prompt a change of behaviour. Although the listing process can be improved, I think we should certainly continue to use this tool.
IFC: Do you support EU-wide corporate tax harmonisation and could EU member states be stripped of their veto powers should they protest such a move?
I find it regrettable that tax policy issues at Council level are often blocked by individual Member States. Granting each Member State a veto right in tax matters means that the unanimity rule within the Council reduces the incentive to move from the status quo towards a more cooperative solution.
I believe a harmonised system to calculate companies' taxable profits in the EU (which is the aim of the Common Consolidated Corporate Tax Base proposal made by the Commission) could help tackle aggressive tax planning schemes in the EU and reduce unfair tax competition. However, for this important tax reform to be adopted, we need unanimity in Council.
A shift towards qualified majority voting in the fiscal domain, which the European Parliament is calling for, would allow for a relaxation of the decision-making process, but would also include the Parliament, so far relegated to a consultative role on fiscal policy. The Lisbon treaty would allow for such a change, thanks to a ‘passerelle’ clause, allowing for the alteration of a legislative procedure without a formal amendment of the treaties. The passerelle clause gives heads of state the option to authorise the adoption of certain motions ‘according to the ordinary legislative procedure’. The European Parliament, in its PANA report, also calls on the Commission to use the procedure laid down in Article 116 of the Treaty on the Functioning of the European Union, which makes it possible to change the unanimity requirement in cases where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the internal market.
IFC: Many countries within the EU and globally have tax professionals giving advice on how companies and individuals can legally minimise their tax burdens. If this sort of activity is considered legitimate, why is it that other countries outside the EU — which offer solutions for companies to legally minimise their tax burdens — are being penalised?
Most services provided by what we call ‘intermediaries’ (consulting firms, banks, lawyers, tax advisors, accountants, etc.) are legitimate. However, recent cases, such as the Panama Papers, exposed the role that some of these intermediaries may play in international tax avoidance and evasion by designing schemes that are specifically set up to help their clients escape taxation. We need to draw a clear distinction between what is illegal and what is legal, even if it runs counter to the spirit of the law, in the framework of tax evasion and tax avoidance practices, in order to ensure legal certainty for all parties concerned.
The new directive, proposed by the Commission and adopted by the Council in March this year, will require intermediaries that design and/or promote tax planning schemes to report the schemes which are considered potentially aggressive. This will enable new risks of tax avoidance to be determined earlier and measures to be taken to block harmful arrangements. Member states will be obliged to impose penalties on intermediaries that do not comply with the transparency measures.
IFC: What chief concerns will the TAX3 committee be addressing in the coming months?
I aspire for the TAX3 Committee to build on the work of its predecessors (the TAXE, TAX2 and PANA committees) and start investigating new issues, such as digital taxation, national citizenship programmes and VAT fraud. At the end of the parliamentary legislature, our committee should send clear and strong messages to our citizens and businesses to show that the European Parliament matters and is key in the fight against tax crimes, tax evasion and tax avoidance.
Petr Ježek MEP and Chair of Special Committee on Financial Crimes, Tax Evasion, and Tax Avoidance (TAX3).