Farny Otto, Franz Michael, Gerhartinger Philipp, Lunzer Gertraud, Neuwirth Martina, Saringer Martin TAX AVOIDANCE, TAX EVASION AND TAX HAVENS May 2015 GERECHTIGKEIT MUSS SEIN Impressum Medieninhaber: Kammer für Arbeiter und Angestellte für Wien, Prinz Eugen Straße 20-22, 1040 Wien, Telefon: (01) 501 65 0 Offenlegung gem. § 25 MedienG: siehe wien.arbeiterkammer.at/impressum Zulassungsnummer: AK Wien 02Z34648 M AutorInnen: Abteilung Steuerpolitik Grafik: Jakob Fielhauer Druck: AK Wien Verlags- und Herstellungsort: Wien © 2015 bei AK Wien Stand Mai 2015 Im Auftrag der Kammer für Arbeiter und Angestellte für Wien Authors: Farny Otto Head of the Department of Tax Law of the Chamber of Labour Vienna Franz Michael Department of Tax Law of the Chamber of Labour Vienna Gerhartinger Philipp Department of Economics and Social Policy of the Chamber of Labour Upper Austria Lunzer Gertraud Department of Tax Law of the Chamber of Labour Vienna Neuwirth Martina Vienna Institute for International Dialogue and Cooperation (VIDC). Expertise in International Financial and Trade Policy, International Tax Law and the impact on so-called Developing Countries Saringer Martin Department of Tax Law of the Chamber of Labour Vienna Index of Abbreviations AIE Automatic Information Exchange ACP African, Caribbean and Pacific countries Art. Article BEPS Base Erosion and Profit Shifting BMF Federal Ministry of Finance CCCTB Common Consolidated Corporate Tax Base CDC Commonwealth Development Corporation CHF Swiss franc CRS Common Reporting Standard CTA Corporation Tax Act D Directive DTA Double Taxation Agreement DfID Department for International Development Ecofin Economic and Financial Affairs Council EStG Income Tax Act EU European Union FATCA Foreign Account Tax Compliance Act FATF Financial Action Task Force FSI Financial Secrecy Index G-8 Group of 8 G-20 Group of 20 GFI Global Financial Integrity GDP Gross Domestic Product HNWI High Net-Worth Individuals ICIJ International Consortium of Investigative Journalists IDB Inter-American Development Bank IFC International Finance Corporation IFRS International Financial Reporting Standards IMF International Monetary Fund LIC Low-Income Country NGO Non-Governmental Organisation OECD Organisation for Economic Cooperation and Development OeEB Austrian Development Bank OJ Official Journal of the European Union TFEU Treaty on the Functioning of the European Union TIEA Tax Information Exchange Agreement TJN Tax Justice Network UN United Nations UNO United Nations Organisation USD United States Dollar VIDC Vienna Institute for International Dialogue and Cooperation Contents 1. Introduction ................................................................................................................. 1 2. Tax Havens, Definitions .............................................................................................. 2 2.1. Tax Avoidance, Tax Evasion and Aggressive Tax Planning, Definitions ...................... 4 3. The Financial Secrecy Index ....................................................................................... 6 3.1. Switzerland .................................................................................................................10 3.2. Austria ........................................................................................................................11 3.3. Luxembourg ...............................................................................................................11 4. The Development of Tax Havens ...............................................................................11 5. Legal or Illegal – Avoidance vs. Evasion ....................................................................13 5.1. The Non-Identifiable Grey Area ..................................................................................13 5.2. Double Non-Taxation through Double-Taxation Agreements ......................................13 5.3. The Development of Digital Products .........................................................................14 6. Profiting from Tax Havens .........................................................................................14 6.1. Wealthy Private Individuals ........................................................................................15 6.2. Companies and International Corporations.................................................................17 Auditing Companies and Private Banks .........................................................................20 6.3. The Tax Tricks of Corporations in Practice .................................................................24 7. How Tax Havens Work ..............................................................................................27 7.1. Base Company (Mailbox Company) ...........................................................................27 Example of a Base Company (Invoice) ..........................................................................28 Example of a Base Company (Royalties) .......................................................................29 7.2. Flow-Through Entity ...................................................................................................30 Example of a Flow-Through Entity (Stepping-Stone Strategy) ........................................31 Example of a Combination of a Base Company and a Flow-Through Entity ...................32 7.3. The Case of Starbucks ...............................................................................................33 7.4. Ikea’s Tax Tricks ........................................................................................................33 8. Current Developments in the EU ...............................................................................35 8.1. Harmonisation of Business Taxation within the EU .....................................................38 8.2. Taxing the Digital Economy ........................................................................................41 8.3. Automatic Information Exchange within the European Union .....................................41 8.4. The Role of the European Commission ......................................................................42 9. International Development .........................................................................................43 9.1. OECD Measures ........................................................................................................43 9.2. Measures to Combat International Tax Evasion .........................................................46 9.3. G20 Measures ............................................................................................................48 9.4. IMF .............................................................................................................................48 9.5. Individual State Measures ..........................................................................................49 9.6. Summary of International Developments ....................................................................50 10. Is Austria a Tax Haven? .............................................................................................53 10.1. Banking Secrecy ......................................................................................................53 10.2. Private Foundations .................................................................................................54 10.3. Group Taxation.........................................................................................................54 10.4. Largely Absent External Tax Law .............................................................................54 10.5. Possible Solutions ....................................................................................................56 11. Demands of the Chamber of Labour ..........................................................................57 12. Summary ...................................................................................................................58 Appendix ........................................................................................................................60 I. The Importance of Taxes and the Effects of Tax Evasion and Tax Avoidance on the “Developing Countries” .........................................................................................................60 The Situation in the Countries of the South ....................................................................60 The International Tax System ........................................................................................62 Tax Evasion ...................................................................................................................63 Tax Havens, Jurisdictions, Financial Secrecy Locations – Many Names, One Problem .64 The Example of Mauritius – Tax Paradise or Sluice for Development Funds? ...............64 The Major Reform Players: G20 and the OECD .............................................................66 Automatic Information Exchange (AIE) ..........................................................................66 BEPS – An Action Plan Against (Legal) Tax Loopholes for Corporations .......................67 Necessary Measures .....................................................................................................69 II. EU Measures to Combat Tax Avoidance and Tax Evasion ........................................70 The Starting Point ..........................................................................................................70