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European Initiatives on Eliminating Tax Havens and Offshore Financial Transactions and the Impact of These Constructions on the Union's Own Resources and Budget

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DIRECTORATE GENERAL FOR INTERNAL POLICIES POLICY DEPARTMENT D: BUDGETARY AFFAIRS European initiatives on eliminating tax havens and offshore financial transactions and the impact of these constructions on the Union's own resources and budget STUDY Abstract This study reviews the impact of tax havens, secrecy jurisdiction, and similar structures on the EU. It concludes that the availability of these structures constrains the EU budget and undermines the fiscal recovery of EU Member States. They distort markets by conferring advantages on large companies that engage in transfer pricing. The study recommends the development of objectively verifiable criteria to identify high risk jurisdictions, combined with mandatory country by country reporting by multinational companies operating in the EU. IP/D/CONT/IC/2012-071 15/04/2013 PE 490.673 EN This document was requested by the European Parliament's Committee on Budgetary Control. It designated Mr Bart Staes, MEP, to follow the study. AUTHOR Blomeyer & Sanz c/cerezos 545b - cd 250 el clavin, es-19163 Guadalajara +34 650 480 051 [email protected] www.blomeyer.eu RESPONSIBLE ADMINISTRATOR Mr Jean-Jacques Gay Policy Department D: Budgetary Affairs European Parliament B-1047 Brussels E-mail: [email protected] LINGUISTIC VERSIONS Original: EN Translation: Executive summary in DE and FR ABOUT THE EDITOR To contact the Policy Department or to subscribe to its newsletter please write to: [email protected] Manuscript completed in April 2013. Brussels, © European Union, 2013. This document is available on the Internet at: http://www.europarl.europa.eu/studies DISCLAIMER The opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. Reproduction and translation for non-commercial purposes are authorized, provided the source is acknowledged and the publisher is given prior notice and sent a copy. European initiatives on eliminating tax havens and offshore financial transactions and the impact of these constructions on the Union's own resources and budget ____________________________________________________________________________________________ CONTENTS LIST OF ABBREVIATIONS 5 LIST OF TABLES 7 LIST OF FIGURES 7 EXECUTIVE SUMMARY 9 ZUSAMMENFASSUNG 14 SYNTHESE 20 1. Introduction 26 1.1. Objectives 26 1.2. Methodology 27 1.3. Report structure 30 2. Background 31 3. Study Area 1 the characteristics, role, usage, and impact of tax havens, and offshore and secrecy jurisdictions 33 3.1. What is the general overall impact of tax havens? 33 3.2. What are the key characteristics of tax havens? 35 3.3. Who is using tax havens and for what purposes? 37 3.4. Which countries and jurisdictions can be considered to be tax havens? 39 3.5. Harmful tax and non-tax practices of tax havens and other jurisdictions 46 3.6. Impact of tax havens on EU financial interests 53 3.7. impact of tax havens on the proposed financial transaction tax 55 4. Study Area 2 - policy and countermeasures of the EU, G-20, OECD, and other international bodies. 57 4.1. Eu legal instruments to tackle the use of tax havens 58 4.2. EU policies and countermeasures regarding tax havens 58 4.3. Policies and countermeasures of other international bodies regarding tax havens etc. 64 4.4. Interaction of EU policies and instruments with relevant international initiatives 73 4.5. Effectiveness of EU policies and instruments addressing tax havens 75 4.6. Coherence of EU approach to addressing tax havens 79 5. Case studies 82 5.1. Greece and Spain 82 5.2. The Netherlands 88 5.3. The UK 91 5.4. Tax havens 94 5.5. VAT fraud case study 100 5.6. The Impact of tax havens on the EU investment climate 105 3 Policy Department D: Budgetary Affairs ____________________________________________________________________________________________ 6. Conclusions and recommendations 106 REFERENCES 111 ANNEX 1 – Data Tables 114 ANNEX 2 - Overseas territories of EU Member States 125 ANNEX 3 - Stakeholders 135 4 European initiatives on eliminating tax havens and offshore financial transactions and the impact of these constructions on the Union's own resources and budget ____________________________________________________________________________________________ LIST OF ABBREVIATIONS AML Anti-money laundering APA Advance Pricing Agreements ATR Advance Tax Rules BBC British Broadcasting Corporation BIS Bank for International Settlements BOT British Overseas Territory CCCTB Common Consolidated Corporate Tax Base CFT Combating the Financing of Terrorism CI$ Cayman Islands Dollar DG Directorate General DTC Double Taxation Convention EC European Commission ECOFIN Economic and Financial Affairs Council EEAS European External Action Service EU European Union FATCA Foreign Account Tax Compliance Act FATF Financial Action Task Force FSI Financial Secrecy Index FTA Free Trade Agreement FTT Financial Transaction Tax FYR Former Yugoslav Republic (of Macedonia) GAAP Generally Accepted Accounting Principles GAAR General Anti-Abuse Rule GAFI Groupe d’Action Financière (Financial Action Task Force) GAO Government Accountability Office GDP Gross Domestic Product GNI Gross National Income HMRC HM Revenue & Customs (UK Tax Authority) IBC International Business Company IBEX Spanish Stock Market Index IMF International Monetary Fund IRS Internal Revenue Service (United States) LLC Limited Liability Corporation MTIC Missing Trader Intra Community NBER National Bureau of Economic Research (United States) NCCT Non-cooperative Countries and Territories’ OECD Economic Co-operation and Development PCA Partnership and Cooperation Agreement PER Participation Exemption Regime SAR Special Administrative Region SBP Sound Business Practice SEPBLAC Spanish Anti Money Laundering Agency SGD Singapore Dollar TAXUD Taxation and Customs Union Directorate General TFEU Treaty on the Functioning of the European Union TFGR Taskforce for Greece TIEA Tax Information Exchange Agreement TUC Trades Union Congress UAE United Arab Emirates 5 Policy Department D: Budgetary Affairs ____________________________________________________________________________________________ UK United Kingdom UKOTA United Kingdom Overseas Territories Association UN United Nations UNODC United Nations Office on Drugs and Crime US United States USA United Sates of America USD United States Dollar VAT Value Added Tax 6 European initiatives on eliminating tax havens and offshore financial transactions and the impact of these constructions on the Union's own resources and budget ____________________________________________________________________________________________ LIST OF TABLES Table 1: Top 10 secrecy jurisdictions according to the Financial Secrecy Index............................................ 44 Table 2: Rankings of EU Member States in the Financial Secrecy Index............................................................ 44 Table 3: Jurisdictions advertised as tax havens.......................................................................................................... 45 Table 4: Revenue of the EU-27 by component 2011................................................................................................ 47 Table 5: EU Expenditure by component 2007 – 2011 (€ million)......................................................................... 54 Table 6: DTCs and TIEAs in 2010 ...................................................................................................................................... 65 Table 7: TIEA requests of two Member States in 2011 and 2012......................................................................... 66 Table 8: Covered payments reported by participating jurisdictions (€ millions)........................................... 76 Table 9: Calculated potential tax revenue from a 15% tax (€ millions).............................................................. 76 Table 10: Tax lost as a result of the shadow economy in five EU Member States.......................................... 82 Table 11: Singapore agreements with EU Member States not yet in force...................................................... 94 Table 12: Cayman Islands agreements with EU Member States .......................................................................... 99 Table 13: Offshore jurisdiction comparison chart ...................................................................................................114 Table 14: Standard VAT rates in Europe (2013) ........................................................................................................116 Table 15: Jurisdictions receiving special attention from the Global Forum ..................................................117 Table 16: Jurisdictions included in a US GAO list of tax havens, but not identified as tax havens by the OECD either in 2000, or 2009 ...............................................................................................................................118 Table 17: Offshore financial centres not identified as tax havens by the OECD either in 2000, or 2009 .........................................................................................................................................................................................119 Table 18: Member States and associated territories with harmful tax measures ........................................120 Table 19: Summary of offshore centre liabilities......................................................................................................121
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