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Tax Justice Focus THE FRENCH EDITION 2007 VOLUME 3, NUMBER 3 TAX JUSTICE FOCUS Europe leads the fight against tax havens 1 Christian Chavagneux and Ronen Palan EDITORIAL Objective Doha 3 The quarterly newsletter of the tax justice network Jean Merckaert FeatuRES Africa: the shadow world of oil 4 Xavier Harel Tax havens and ill-gotten wealth 6 Antoine Dulin and Jean Merckaert Economic and financial crime needs 9 a coordinated response EUROPE LEADS THE FIGHT Chantal Cutajar Harmful Tax Practices: 10 Next steps for Europe Vincent Drezet AGAINST TAX HAVENS NEWS AND RESEARCH Expert meeting in Rome considers Europe contains a number of tax havens, but is becoming less tolerant of them: in European states, for their part, have been tax agenda for Doha 2008 12 making progress on three fronts. David Spencer fact, the European Union has increasingly taken the lead in the global fight against Letter from Africa 13 tax havens and offshore financial centres. Christian Chavagneux and Ronen Palan First, on the taxation of the savings of non- Alvin Mosioma residents. Since July 2005, an EU directive outline how the EU is leading the way. REVIEWS applying to all member states requires Paradis Fiscaux 14 information to be exchanged on non-resident he European Community’s Court of when the court condemned what it called Capitalisme Clandestin 14 deposits with the relevant national authorities. Justice (the highest court in the EC) “wholly artificial” subsidiaries in tax havens. In Jacques Terray Austria, Belgium and Luxembourg secured has signalled how attitudes are shifting another important judgement delivered on 13 Afrique pillage à huis clos 15 T the right to retain their banking secrecy, but in Europe. As recently as 2005, the Court March 2007 (the so-called ‘thin-cap’ affair), the Court ruled that states could restrict freedom are required to impose a withholding tax on CALENDAR 15 tended to side with individuals and corporations earnings from deposits starting at a rate of 15 and not with states seeking to protect their of establishment of wholly artificial structures Guest editor: Jean Merckaert devoid of economic reality and having tax per cent from 2005 to 2007, rising to 20 per Editor: Nicholas Shaxson revenues. But then, in a landmark judgement in avoidance as their principal objective. cent from 2008 to 2010, and to 35 per cent Contributing editor: John Christensen April 2005 (the Halifax case), the Court ruled thereafter. This depended on applying equivalent Design and layout: www.tabd.co.uk Email: [email protected] that European law forbids transactions having Three swallows do not, of course, make a measures to the principal non-EU member Published by the Tax Justice Network International the sole purpose of creating a tax advantage. summer: we must carefully monitor future state competitors (Andorra, Liechtenstein, Secretariat Limited This interpretation was reaffirmed in a case rulings. But the change in attitude signals that Monaco, Saint Moreno, Switzerland) plus all © Tax Justice Network 2007 involving Cadbury Schweppes in May 2006, something important is happening. the dependencies and associated territories For free circulation, ISSN 1746-7691 THIRD QUArter 2007 VOLUME 3 ISSUE 3 TAX JUSTICE FOCUS of member states (the Channel Islands, Isle “The code of conduct introduced an important innovation Luxembourg to abandon its tax regime for of Man, and Caribbean islands). And, despite that overturns a traditional objection of tax havens: that holding companies. Similarly, the adoption of pessimism about being able to do this, this new tax regimes by Jersey, Guernsey and the was achieved. European financial diplomacy under the principle of sovereign equality large and powerful Isle of Man from 2008 onwards (notably the has continued: in early 2006, the Cayman states cannot dictate to smaller states what laws or rules they 0% tax rate on business profits) may be taken Islands and Montserrat agreed to information to task for not respecting the Code. exchange in principle, and the British Virgin can or cannot impose in their own territories. “ Islands and Turks and Caicos opted for the The struggle against tax havens has a long and principle of a withholding tax. process would mean that group profits are in the EU, including: lack of transparency; difficult road ahead. But we should recognise taxed just once in the EU, and the resulting tax rates significantly lower than in other that the European Union has already taken The European Commission admits that some revenues are then distributed between the countries; tax advantages specifically targeted several positive steps, and seems to want to of Europe’s offshore capital has simply fled different countries according to agreed at non-residents (i.e. ring fenced from the go still further. to Asia as a result. But this has prompted criteria (e.g. amount of capital invested, sales local economy) or targeted at economic the EU to widen the geographical scope of turnover) as is already done between states in or financial activities not connected to real Christian Chavagneux and Ronen Palan its initiative, and now it is seeking to open the U.S., and in Canada. There is a long way to domestic economic activity; or ways of taxing co-authored Les paradis fiscauxpublished by La negotiations with Hong Kong, Singapore, go before a consensus is reached, but Germany profits that fall outside international norms. Macau and Japan, as well as with Canada, and France support the proposal. The United Découverte, Paris, new edition 2007 Bahrain, Dubai and the Bahamas. Since last Kingdom and Ireland, predictably, oppose it, The code of conduct introduced an March, there are clear indications that the because they fear that harmonisation of the important innovation that overturns a Commission has targeted several loopholes tax base will be followed by harmonisation traditional objection of tax havens: that under in the directive, and is working with financial of tax rates. The proposal is also opposed the principle of sovereign equality large and intermediaries to try and identify how best by the Baltic states and Slovakia, which fear powerful states cannot dictate to smaller to close them. After that, the EU will have to that a harmonised tax base will be narrower, states what laws or rules they can or cannot convince the tax havens to follow suit, as it and will allow more exemptions, than their impose in their own territories. To avoid the has already done with the original directive. existing regimes. The Commission has given charge of ‘imperialism’, the code does not According to tax expert Richard Murphy “if itself until 2008 to come up with a directive try to elaborate a principle of “just taxation” UPDATE that happens, most of the existing loopholes for company taxation. and then impose this on recalcitrant states. Europe is playing hardball on this: Reuters in the directive will disappear”. Instead, taking a line of reasoning adopted Finally, for several years a code of good by the OECD, the code accepts the principle reported on October 2 that Singapore’s Second, the EU is also pushing for the conduct on business taxation has been of tax competition, allowing states freedom refusal to soften its strict bank secrecy harmonisation of company taxation applied within the European Union. The code of choice in this matter. But then, crucially, it laws could scupper talks with Europe across the community. Multinational does not have the status of a legal instrument, insists that the tax regime’s rules are applied about a trade agreement. “Clearly people engaged in money laundering are looking companies with subsidiaries in more than one but provides an informal approach to regulation equally on all businesses in the jurisdiction. for places like Singapore with low levels of European country pay taxes in the countries which has nonetheless proved effective. In This confronts and challenges jurisdictions transparency to actually engage in money they operate in, but they tend to shift profits adopting this code, member states have that have created a niche in the global laundering,” said Glyn Ford, a Member to the lowest-tax country through complex been working towards eliminating a number economy precisely by making a distinction of the European Parliament. “Is this a systems of transfer pricing. A European-wide of harmful tax competition practices and in their tax treatment between resident and dealbreaker? Potentially yes.” tax base would reduce the incentives for doing avoiding new ones. The code sets out explicit non-resident companies. Citing the code, for so: applying a “formulary apportionment” criteria for identifying harmful tax practices example, in 2006 the Commission forced 2 THIRD QUArter 2007 VOLUME 3 ISSUE 3 TAX JUSTICE FOCUS OBJECTIVE DOHA: editorial TACKLING THE HAVENS Jean Merckaert n December 2008, six years after the “the G-8 countries, which have the means but not the will to stamp out this phenomenon, Monterrey Conference in Mexico, Doha tolerate this secrecy because of pressures from the principal beneficiaries of tax evasion: banks, I will be hosting the United Nations’ follow up conference on Financing for multinational companies and super-rich people.” Development. This choice of location calls for a moment’s reflection, since the name of up by G-8 to combat money laundering. And well as this, the G-8 countries, which have has also announced that it is preparing to the capital of Qatar – an emirate bordered yet organised crime continues to prosper. the means but not the will to stamp out this launch a study of illicit financial flows from by the offshore financial centres of Bahrain The Financial Stability Forum (FSF) has also phenomenon, tolerate this secrecy because South to North, whilst also engaging with the and Dubai – is often associated with the dropped its own list of offshore financial of pressures from beneficiaries of tax evasion: United Nations in strengthening procedures resounding stalemate of the WTO’s so-called centres not cooperating with the rules banks, multinational companies, super-rich for repatriating ill-gotten loot.
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