1546494 Fifty Shades of Tax Dodging the Eu s Role in Supporting an Unjust Global Tax System

7/26/2019 1546494 Fifty Shades of Tax Dodging the Eu s Role in Supporting an Unjust Global Tax System

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STOP

Fifty

Shades of Tax

DodgingThe EUsrole in supportingan unjustglobal tax system

A report coordinatedby Eurodad


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Acknowledgements

This report was coordinatedby Eurodad with contributionsrom ci!il societyorganisationsin countriesacross Europeincluding"

##$##$## %&elgium'( )entre nationalde coop*rationaud*!eloppement%)+),-##$##$##'%&elgium'( .lopolis %)/ech0epublic'( 1&1S %,enmark'( ,emnet %2ungar y'( ))3,-TerreSolidaire %3rance'( Oxam 3rance %3rance'( 4orld Economy5Ecology 6 ,e!elopment%4EE,' %.ermany'( .lobal Policy3orum %.ermany'( ,ebt and ,e!elopment)oalition 1reland%,,)1' %1reland'(0e")ommon %1taly'( the )entre or 0esearch

on 7ultinational )orporations%SO7O' %+etherlands'(1nstytut.lobalnej Odpowied/ialnosci %Poland'( 1nspirAction%Spain'(Oxam 1nterm8n%Spain'( Ek!ilib 1nstitute%Slo!enia'( 3orumSyd %Sweden'( )hristianAid %U9'$

A specialacknowledgement goes to doctoral researcher7artin 2earson o the :ondon School o EconomicsandPolitical Science%:SE' or pro!iding data and !aluable inputon the sectionsrelated to tax treaties$

Each chapter was written by ; and isthe responsibilityo ; the nationally-basedpartners in the project5 and doesnot relectthe !iews o the rest o the project partners$The chapter on :uxembourg was written by ; and

isthe

responsibilityo ; Eurodad$

3or more inormation5 contact Eurodad"

0ue dEdimbourg5#< ; => 7undo & building %?rd loor'#@@ 1xelles5&russels5 &elgium

tel" B?= %@' = D@

e-ax" B?= %@' = C# C< @C

ww w$eurodad$org

,esign and artwork" Fames Adams

)opy editing" GickyAnning5Fulia0a!enscrotand Hala Hbogar$

The authorsbelie!e that all o the detailsin thisreport areactually accurate as o October =@#$

The repor t hasbeen produced with the inancial assistanceo the EuropeanUnion and +orad$ The contents o thispublication are the sole responsibilityo Eurodad5 and the authors o thisrepor t and can in no way be taken torelectthe !iews o the unders$
http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/http://www.eurodad.org/


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Contents

.lossary DExecuti!e summary >

.lobal o!er !iew

1reland @

1taly D

:uxembourg with the in!ol!ement o interestednon-.=@countriesand jurisdictions5particularlyde!elopingeconomies5on an eLual ooting$R 2owe!er5 it isimportanttonote that thiscall isnot an in!itation or all countriesto joinany decision-makingprocess5but rather to join in ollowingthe &EPS rules ater they ha!e been adopted$?@

Only Dper cento large companiesbelie!e that all &EPS recommendationswill be implementedin all OE), countries$?#

representati!es to point out that The OE), approach willsimplylegitimiseKinno!ationboxregimesand hence supplya legal mechanismor proit shiting5encouragingstates topro!ide suchbeneitsto companies$1t will be particularlydamagingto de!eloping countries5which may be usedas manuacturingplatorms5while their taxbase willbedrainedby thislegitimisedproit-shiting$Such measuresshould simply be condemned and eliminated$R?D E!enbeore

the end o the project5 a number o new OE), countrieshadannounced that they ha!e started establishingpatentboxes%see sectionD on 0eport 3indings'$

On the issueo anti-abusepro!isions5the &EPS processmanaged to reach a welcome agreement$? Unortunately5the concern remainsthat de!eloping countrieswill notbe able to use thesepro!isionstopre!enttax a!oidanceunless also gi!en access to suicientinormationabout themultinational corporations operating in their countries$?> Theagreement also doesntaddress the lowering o withholdingtax rates5 which isa major concern regardingtax treaties%seesection?$ on Tax Treaties'$

At the o!erall le!el5 ci!il societyexpressedstrong concernthat &EPS stillsticks to the principle o Karmslengthapproach5which means that subsidiarieso multinationalcorporationsare treated as independentcompaniesratherthan one big company$? 1t isthisapproach that allows amultinationalcorporationto claim it has noproitsin agi!encountry5 while at the same time ha!ing !ery largeanduntaxed proitsin low tax jurisdictions$

Only per centobusinessesplan tobecome more conser!ati!e in their taxplanning as a result o the &EPS project$?


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#= I 3ity Shades o Tax ,odging

&ox

2ow &EPS turned good ideasinto bad decisions" The case o countryby country reporting

)ountr y by country repor ting %)&)0' asks multinationalcompanies to repor t on key inancial data or eachcountry it operates in$ 1t isone o the oldest demandsrom tax justicecampaigners$So when the OE),announced under &EPS that it would recommend )&)05it seemed a real testament to how ar the idea had comesinceit was irstproposed$

2owe!er5 the ine print o the recommendationson

)&)0 oered an example o how the OE), &EPS projecthasbeen able to turn good ideasinto bad decisions$There are at least threebigproblems with the &EPSrecommendationsin thisarea"

#$ Si/e o companies" The &EPS recommends that

only companieswith an annual turno!erhigher than@ million should be reLuiredto comply withthistype o repor ting$ According to the OE),sownestimates5thiswould exclude


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#$D A global representati!ereorm ointernational taxation

A genuinesolutionor de!eloping countrieswould be to

initiate a truly global reorm process o internationaltaxationwhere they ha!e ull right to eLual participation$Aproposalor such aprocess was brought up in the United +ations%U+' as ar back as =@@#5 when a U+ 2igh-:e!el Panel on3inancing or ,e!elopmentproposed the establishmentoan K1nternationalTax Organi/ation$DC Since then5 it hasbeena reoccurringconlict in the U+5 where de!eloping countriesha!e continuouslypushed or the establishmento a globaltax body5 which could gi!e them an eLual seat at the tablewhenglobaltaxstandardsaredecided$@

2owe!er5 the proposal hasbeen rejectedby de!elopedcountries5and inparticularby the OE), 7ember States5

which ha!e argued that the global decisionmakingshould only take place at the OE),$# 1nsteado anintergo!ernmentalbody5 it was decided to keep the U+swork on tax matters restrictedto a U+ expert committeeontax5 which can pro!ide ad!ice on tax mattersbut not makeintergo!ernmentaldecisions$=

1nthe negotiations leading up to the ?rd 3inancing or,e!elopmentconerencein AddisAbaba5 the .roup o %.'5 which isa negotiatinggroup representing#?Dde!eloping countries5once again highlightedthe issue$Theirnegotiatorstated" the act remainsthat there isstillno globalinclusi!e norm settingbody or internationaltax cooperation

at the intergo!ernmentalle!el$ There isalso not enough ocuson the de!elopmentdimensiono these issues$The groupreiteratesitscall Qoran intergo!ernmentalsubsidiarybodySQT to allow all member states5 including de!eloping countries5toha!eaneLualsayonissuesrelatedtotaxmatters$R?

This call was supported by U+ Secretary-.eneral&an 9i7oon5 who recommended that an intergo!ernmentalbodyon tax matters shouldbe establishedunder the auspiceso

theU+$

D

The discussion about the global tax bodybecame the biggestissueo debate during the Third 3inancing or ,e!elopmentconerencein AddisAbaba$2owe!er5 in the end5 thede!elopedcountriesensured that the proposal to establishan intergo!ernmentalU+ tax body was not included in theoutcomedocument;theAddisAbabaActionAgenda$

This led to strong criticismrom leading academics$+obellaureate Foseph Stiglit/ criticisedthat countriesrom whichthe politically powerul tax e!adersand a!oiderscome aresupposed to designa systemto reduce tax e!asionR5> andProessorFos* AntonioOcampo5 ormer3inance7inistero

)olombia5 highlighted that the dominationo a select groupo countrieso!er tax norms has meant that5 in reality5 theglobal go!ernancearchitectureor taxation has not kept pacewith globali/ation$R

&ut the AddisAbabaconerenceisunlikely to be thelast chapter o thisstory$ 1ntheir closingstatement5 thede!eloping countries5through .5 underlined that they ha!enot changed their positionand remainirmly committedto

pursuingthe upgrade o the U+ expert committeeinto anintergo!ernmentaltaxcommittee$


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#D I 3ity Shades o Tax ,odging

=$ 4hy internationaltax matters orde!elopingcountries

&ut the challenge isnot only an Aricanone ; it concernsde!eloping countriesin general$ 1nnew estimateso thescale o the tax dodging problem in =@#5 the United +ations

)onerence on Trade and ,e!elopment%U+)TA,' estimated

There isincreasingrecognition5not least rom de!elopingthat one tax a!oidancemethod alone iscostingde!eloping

>=

countries5 that taxation isa key part o the answer to howde!elopmentcould be inanced$C Se!eral de!elopingcountriesare increasinglyrecognising the need not onlyto attract oreign in!estors5but also to make sure thatin!estorspay taxesand contributeto de!elopment$

The D heads o state o the AricanUnion sent animportantsignalo thisstance early in =@# when theyadopted a report on illicit inancial lows5 along withstrong recommendations>@ that identiied proit shitingbymultinationalcompaniesas by ar the biggestculpritsoillicit outlows$R>#

countriesbetween @ billion and #=@ billion per year$

The signiicanceo thisloss ise!ident in comparisonwiththe sum o approximately#C?billion >D that multinationalcompaniesdo pay in corporate income taxesin de!elopingcountries$>

Perhaps most shocking5an 173 study ound that on a!erage

and as a share o national income5 the re!enueloss tode!eloping countrieswas in the long run roughly ?@percent higher than or OE), countries$This suggests in thewords o the 173 that the issuesat stake may well be more

pressingorde!elopingcountriesthanorad!anced$R>>

&ox >

Tax dodging in :atin America5Aricaand Europe

,uring the last year three new reports showed how

de!elopmentand socialjusticein both de!elopedand5

especially5de!eloping countriesare underminedbymultinational companiestax dodging$

1n:atin America5:AT1+,A,, has analysedtheaccountso the Vanacochagold mine in Peru5 the most

impor tant gold mine in South America5which isalso thethird biggestand the mostproitableone in the world5accordingto itsowners$> The repor t estimatesthatas much asO< in taxes could ha!e beena!oided during the =@-year period rom #CC?;=@#? due to

proit-shiting$>C

1nArica5researchby ActionAid reported how one

Australianuraniummine haspotentially a!oided millionsintax re!enuesin 7alawi ; one o the poorest countriesinthe world$@ 0ather than unding itsoperationsin 7alawithrough itsheadLuarters in Australia5 the mining companychose to und it through the +etherlands with a large loan$

This generatedpaymentso#?

7alawi cancelled itstax treaty with the+etherlands in=@#D and a new one was signedin April =@#$ Althoughthe new treaty includesanti-abusepro!isions5theconcern remainsthat thesepro!isionswill not be eecti!eunless 7alawi also gets access to adeLuate inormation

about the multinationalcorporationsoperatingin 7alawi$ I 3ity Shades o Tax ,odging

?@per cent"Share o inancial wealth in Aricaheld oshore5correspondingto?@ billion$C?

#@per cent"Share o inancial wealth held oshore in Europecorrespondingto almost O= trillion$CD

The inormationre!ealedin Swiss:eaksonly concerns one

bank in one country5 and again justhintsat the scale o amuch bigger story$ An estimated#$ There are strong indications that the problemisbigger or de!eloping countries than or de!elopedcountries5C with estimatessuggestingthat while #@ per cento inancial wealth isheld oshore in Europe5 the proportionis ?@ per cent or the inancial wealth o Arica$C EU-based banks5### char teredaccountant 0ichard 7urphy inds that public datamakes itpossibleto conduct a rudimentary riskanalysisopossibleproit shitingand base erosionby

the banks$ Two impor tant indings emerge rom therisk analysis$

3irst5shitingoproitsin low-tax and oshorejurisdictionsseems to be happening##= thuspotentiallygeneratingan erosiono other countriestaxbase( andsecondly5 the main jurisdictionsallowing this are ; ingeneral; what he terms the Kusualsuspects$The topi!e jurisdictionswhere there are indicationso o!er-repor ting oproitsare the US5 &elgium5 :uxembourg51relandand Singapore$##?

The analysiso the newly publishedinormationalso shows how the publishedcountry by countr

y repor ting helps shed light on what goes on inde!eloping countries$3or example5 back in =@#=&arclayspublisheditsaccounts on a consolidated

basisthus making it impossibleto know much aboutitsoperationsin de!eloping countries$+owadays5theaccounts that the bank publishesallows readers todeterminethat5 in =@#D ; as two random examples; ?@employeesgenerated a turno!eroODD$?>million##D

in :uxembourg5 where the company paidOD$Cmillion##

in taxes5whereas in 9enya =5 in taxes$##


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#< I 3ity Shades o Tax ,odging

Table ="+umber o listedcompanies that would report ona countryby country basisusing the OE), &EPS thresholdand the proposed threshold o the European Parliament

+o$ o listed

The OE), &EPS recommendationsor country by countryreportinghas a urthershortcomingin that it only appliesto!er y large companieswith an annual consolidatedturno!ero more than @ million$ A current proposal rom theEuropean Parliament##C would extend country by countryreportingto all Klargeundertakingsas deined in an existing

)ountr y

+o$ o listedcompanies5OE), &EPSthreshold

companies5European

Parliamentproposedthreshold

EU directi!e$#=@ AsTable = illustrates5the &EPS thresholdwould only apply to a relati!ely small number o companieswhile the threshold proposedby the European Parliamentwould apply to signiicantlymore companies$Asthe iguresin Table = only show listedcompaniesthey are merely

&elgium =<

,enmark => =

3rance #D D# >#

1taly >C #C

:uxembourg => D

+etherlands ># ##@

Poland =C =?

Slo!enia > =

Spain D< #@=

Source" Eurodad calculations##


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3ity Shades o Tax ,odging I #C

Europe isa major centre or routing in!estmentsthroughletterbox companies$:uxembourg and the +etherlandsare particularlyimportantin thisrespect5 accountingtogether or approximatelya Luarter o all the worlds3,1stocks$ :uxembourg alone accounts or D per cent o allin!estmentsgoing out o Europe$#= Other European countriessuch as Austria5)yprus52ungar y and Spain also ha!eattracti!eSPE regimes$#="+umber o these patent boxes that ha!e been introducedinthe past i!e years$#?

7eanwhile5 the prolierationopatent boxes in Europe is

being noticed abroad$ A contributorto the inluentialmaga/ine3orbes highlighted5under the title Patentboxescome to 1relandand U95 why not USMR5 that patentboxescan signiicantly reduce a companyseecti!e tax rateR5pro!iding a bonan/aR or companies$2e then recommendsthat USpolicy-makerscopy Europes lead onpatentboxesand ends the articleby asking"whatsnot to likeMR #?< 1tseems the calls ha!e been heard5 asbi-partisansupport orthe measure was reached in the US )ongress in 7ay =@#$#?C

3rom a tax justiceperspecti!e5howe!er5 patent boxes raiseanumber o seriousconcerns$

3igure =" 1n!estmentlows through tax ha!ens%T2' and special purpose entities%SPE' by region5 =@#=

>@N

@N

Special purpose entities %SPE'

Tax ha!ens%T2'

D@N

?@N

=@N

#@N

@N,e!eloped

ec

ono

mi

es

,e!elopingeconomies

Arica ,e!elopingAsia


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:atin

America6 )aribbean

Transition

economies Source" U+)TA, %=@#' World Investmenteport$3or a listo countriesthat U+)TA, considerstobetax ha!ens5see p$ =#D5 endnote C o the report$#D@


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3ity Shades o Tax ,odging I =#

3igure ?" )orporate tax rates !s$ patent box rate %year o adopting apatentbox'

1taly%=@#'

Por tugal %=@#D'

3rance %#C#'

Spain %=@@


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== I 3ity Shades o Tax ,odging

?$ Tax treatiesThe U+ in =@# warned that while tax treatiesare designedto a!oid or to mitigate the eect o double taxationR

Table "+umber o tax treatiesin orce between# EU 7emberStates and de!eloping countries

they ha!e insteadresultedin many instanceso double :ower Upper

%,ouble Tax Agreement'comes rom

Source" ActionAid#=

Zthe lower rate o withholding tax appliesto di!idendspaid to a oreigncompany rom a subsidiary in the source country in which it owns morethan= per cent$

nontaxation$R#D> That thisreal danger to de!eloping countrieswas reairmedwhen ActionAid in =@# released a repor t

)ountr y:ow

1ncome7iddle1ncome

7iddle1ncome

Total

that showed how an Australianmining company operatingin7alawi was able to reduce itstax contributionsby inancing 1reland @ #D =#

itsin!estmentsthrough the +etherlands and therebybeneitrom a /ero rate withholding tax containedin a tax treaty Slo!enia @ #D =#

between 7alawi and the +etherlands %see more inbox> $#D 1norder to a!oid com aniessettin u subsidiaries :uxembourg # #@ # =>

in jurisdictionswith the sole purpose o reapinga treatybeneit %so-called treaty shopping'it is!ital that treaties

2ungar y @ #= #< ?@

with de!eloping countries include an anti-abuseclause$#D ## = D=

rightsto tax oreign in!estmentsat the source5 e$g$ in their

country$ The U+ model generallydistributes more tax rights+etherlands D # =? DD

to de!eloping countries$#@ &elgium ? #< => D

Qtheinitiati!e or negotiating a ,TASpain # # =C D

.ermany # => D # => DCOicial at the )ommon 7arket or Eastern andSouthern Arica%)O7ESA'## 3rance ## #< ?? >=

United 9ingdom C => =< >?

Table D" The dierence in withholding tax %42T' rates in the > =#> ??C >=OE), and U+ model tax treaties

Source" See 3igure D

7aximum 7aximum 7aximum42T on 42T on 42T on

di!idends interests royalties

OE), model to # per #@ per Exempttreaty centZ cent rom 42T

+o +o +o

treatymaximum maximum maximum

limit limit limit


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3ity Shades o Tax ,odging I =?

3igure D" A!eragerate reductions %N' in treatiesbetween # EU 7emberStatesand de!eloping countries

:uxembourg

Poland

1reland

&elgium

1taly

2ungar y

Slo!enia

A!erage

3rance

)/ech 0epublic

,enmark

+etherlands

.ermany

Sweden

United 9ingdom

Spain

@N #N =N ?N DN N >N

Source" Eurodad calculations$#? The a!erage ratereductionco!erswithholding taxeson our incomecategories"0oyalties5interests5di!idends oncompaniesand Lualiied companies$1t doesnot co!er tax rates on ser!icesor managementeesdue to the lack o data$ The a!erageratereductions between the European countriesco!ered in this repor t and the de!elopingcountriesreersto the dierencebetween therates contained in the treaty and the statutoryrates in the de!eloping country or all our incomecategories$The igure or the o!erall a!eragereductionisan un-weigheda!erageor all o the# European countries co!ered in thisrepor t$

&eyond challenges with treaty shoppingand the distributiono taxing rights5tax treatiescan ur ther underminethere!enuebase o de!eloping countriesthrough reductiono withholding tax rates$ Theseoten get reduced innegotiationsbetween go!ernments$

The U+ in a =@# repor t notes that many de!elopingcountrieswith weak tax collectioncapabilitiesha!e seenlimitsimposedon the use o a relati!ely eecti!e taxcollection mechanism %withholding taxes'Rthrough treatiesdue to these reductionsin rates$#D Table D shows that this

problem isagain also related to the OE), model5 which

generallyimposeslow maximumrates o withholding taxes5while the U+ model does not set such limits$

Analysiso the # EU countries co!ered in thisreport showthat most are Luite acti!e in reducing the withholding tax ratesin their treatieswith de!eloping countries %see 3igure D'$

Qi you look at all these %treaties'thatha!e been signed5 you can probablylink to a !ery major company that cameinto thiscountry$RArican7inistry o 3inance oicial#


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=D I 3ity Shades o Tax ,odging

?$> Tax rulingsThe internationalrules or taxation o multinationalcorporationsremainuncertain and complex5 and concernsha!e been raised that the outcome o the OE),s&EPS

process %see section#$?' will only increasethisproblem$#>

1n order to ha!e legal clarity5 tax administrationscan oercompaniesor indi!idualstax rulings5including ad!ancepricing agreements %APAs'5 that make their tax positionclearand assures that the tax administrationwill not challengethe taxpracticesagreed on$ Thesetypeso agreementscan be eecti!e waysto make the tax systemmore eicientby bringing certaintyto corporations$2owe!er5 they can

alsobe misusedto legitimisesigniicanttax a!oidance5and so their use needs to be transparent and accountable$)urrently5these agreements are oten negotiatedbilaterally

between the multinational corporation and the national taxadministration5 and are kept in secrecy$

The secret world o tax rulingsor multinationalcorporationsbecame better known ater the :ux:eaksre!elationsin+o!ember=@#D$# A lawproessorhasdescribedthese tax rulingsin the ollowing way" 1tsliketaking your tax plan to the go!ernment and getting itblessedahead o time$R#< Such tax rulingsha!e nowbecome akey tool in corporate tax a!oidance$4ithpro!isionor tax

rates lower than # per cent in some cases5#C

multinationalcompanieslocked to :uxembourgstax department to geta ruling$ The audit company Pw) that brokered the taxrulingshas sincebeen accused in the U9sPublic Accounts)ommitteeopromotingtax a!oidanceon an industrialscale$#>@ Alongwith other EU 7ember States5 :uxembourg iscurrentlyunder in!estigationby the European )ommissionor usingtax rulingsas a orm o illegal state aid$ The)ommissionsin!estigationwas expanded in 7arch =@# toinclude tax deals with 7c,onalds$#>#

Shocking as the re!elationsrom :uxembourg were5 thereally disturbing thing about these leaks was that they only

in!ol!ed one country and the tax rulingsbrokeredby oneaudit company$ 1t issaeto saythat :ux:eaks re!ealedonly the tip o the iceberg"underneath isa much wider anddeeper problem5 since== o Europes7ember States makeuse o tax rulingsand we can only guess at the pro!isionorlower corporate taxesthat they in!ol!e$ 4hile :uxembourg isone o the most acti!e 7ember States in issuingtax rulings5it is certainly not the only one$ 3igure illustratesthis5showingonly one type o tax ruling ; the so-called Ad!ancePricing Agreements%APAs'$

The European )ommissionannounced in 7arch =@# thatthe detailso tax rulingswould be automaticallyexchanged

between 7ember States within the EU in an attempt todiscourageexcessi!erulings$#>=

1mportant as thisstep may be5 it does nothing to assistde!eloping countriesor the citi/enso Europe in accessingthe tax rulings5and doesntaddress the underlyingproblemo a complex5 uncer tain and !er y opaLue tax system5wherego!ernmentsoten engage in Ktaxcompetitionto attractmultinational corporations with oppor tunities to lowertheir taxes5rather than work together to ensure a solidandcoherent tax system$#>? ,ata rom the )ommissionshowsthat5 out o the D APAsin orce in EU 7ember Statesbythe end o =@#?5 #< were with non-EU countries$#>D

The )ommissionisconductingan impact assessment tolook into the pros and cons o making parts o the tax rulings

public$ This isexpected to be ready by the beginning o =@#>$2owe!er5 as isthe usual case with the )ommissionsimpactassessments5 it will most likely not considerthe interestsode!eloping countries when weighing up the pros and cons$

?$ Excluding de!eloping countriesrom decisionmaking

Ashasbeen highlightedabo!e5 the OE), &EPS reormsha!e systematicallybeen biased against the interests ode!eloping countries$

Europe playsa key role in upholding the current system5which dictatesthat internationaltaxation reormisdiscussedand progressed through OE), and .=@ orums5where morethan #@@ de!eloping countries are not represented$ 3oryears5de!eloping countries ha!e been calling or the U+ totake o!er the internationaltaxation reormprocess5 as thiswould allow all countriesin the world to ha!e a seat at thetable when decisionsare to be taken$ The EU played anacti!erole in blocking thisproposal in the Fuly3inancing or,e!elopmentconerencein AddisAbaba5where the Luestiono the global tax body was a key stickingpoint betweende!elopedand de!eloping countries$

1nthe early stages o the negotiations5 the EU seemed toindicate some openness to discussingthe proposal5 callingor a cost-beneitanalysis5more clarity o what the mandatewould be and relectionson the potentialinterlinkageswith

between dierent bodiesto a!oid Kwasteulduplication$#>

2owe!er5 the EUsline then changed to opposingtheintergo!ernmentaltax body with a reerenceto the problemo Kinstitutionalprolierationand their preerenceorkeeping the decision making at the OE),$#>> Theproposalwas also opposedby other de!elopedcountries5including theUnited States#> and in the end it was not adopted$


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3ity Shades o Tax ,odging I =

3igure " Total number o Ad!ance Pricing Agreements%APAs'in orceby the endo =@#? in selected EU 7emberStates

:uxembourg

United 9ingdom

2ungar y

Spain

1taly

3rance

)/ech 0epublic

.ermany

3inland

EU A!erage

Poland

Slo!akia

,enmark

1reland

&elgium0omania

Austria

Por tugal

Sweden@ =@ D@ >@ C the OE), has stressed the need to build thecapacitieso de!eloping countriestax administrationsinorder or them to be able to implementglobal tax standards$

2owe!er5 reducingthe Luestiono how de!eloping countriescan raise more tax re!enuesto one o capacity missestheinherentlypolitical nature o the problem and shitstheonus onto de!eloping countriesand away rom de!elopedcountries$This was captured in a report adoptedby the DAricanUnion heads o state5 which states" it issomewhatcontradictory or de!elopedcountriesto continuetopro!idetechnicalassistanceand de!elopmentaid %though at lowerle!els'to Aricawhile at the same time maintainingtax rulesthat enable the bleedingo the continentsresources throughillicit inancial outlows$R#@

,espitethiscontradiction5 the need or capacity building

on taxation isundeniablein most de!eloping countries"itisestimatedthat Aricancountrieswould ha!e to hire anadditional>@5@@@ tax oicials to ha!e the same ratio o taxoicials topopulationas in OE), countries$##

2owe!er5 capacity building can alsobe used topromote theOE),spoliciesin de!eloping countries5and to increase the

pressure on de!eloping countriesto implementthese5regardless o whether they ser!e de!eloping countryinterests or not$ This includespolicies that ha!e pro!en to bediicult to operationalisein de!eloping countries; such as theOE),s arms length principle to address transermispricing$#=


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=> I 3ity Shades o Tax ,odging

&ox @ per cent o all oreign-held depositsin Swissbanks belong to entitiesin the&ritishGirgin1slands5Ferseyand Panama5 all renownedjurisdictionsor setting up shell companies$#


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3ity Shades o Tax ,odging I =

3igure >" 7oney-laundering risksin # EU countries5 =@#

:uxembourg

.ermany

1taly

Spain

+etherlands

3rance

United 9ingdom

&elgium

)/ech 0epublic

EU A!erage

1reland

,enmark

2ungar y

Sweden

Poland

Slo!enia@ # = ? D >

Source" &ased on the &asel 1nstituteo.o!ernancesAnti-7oney:aundering1ndex=@#$#


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=< I 3ity Shades o Tax ,odging

Reort findings

D$# Taxpolicies

Tax rulingsi

Tax rulingsare common in most othe countriesco!ered in thisreport5although more so in a ew countries%most notably in the +etherlands and:uxembourg'$1nall except one o the# countriesco!ered in the report%Slo!enia'5the go!ernments allow or thegranting o Ad!ance PricingAgreements %APAs' to multinational

corporations$ii

Se!eral o the

countries co!ered are currentlysubject to European )ommissionstate aid in!estigations in relation totheir taxrulings%:uxembourg5the +etherlands51relandand &elgium'$

Shell companiesiii

1nrelationto shell companies5one othe biggestchanges o the year wasthat a number o countries co!ered inthis report or the irsttime startedto report separatelyon the oreign

direct in!estment%3,1' lows goingthrough their specialpurposeentities%SPEs'$O the countriesco!eredin thisreport5 the a!ailable data showsthat routing o3,1 through SPEs is commonplacein almost hal o them %:uxembourg5the +etherlands5 2ungar y5,enmark5 Spain and 1reland'$

1nthe past year5 more o the #

countries co!ered in this report arebeginning to include anti-abuseclauses in their treatieswithde!eloping countries%or example5in the +etherlands5 ,enmark53rance and Poland'$ 1nothercountries5go!ernmentsareincreasinglypressured toacknowledge the potentialnegati!eimpact o their treaties with de!elopingcountries%such as in 1reland5where thego!ernmentconducted a spillo!er

analysisand in ,enmark where aParliamentary hearingwas held on the

topic'$ Some treatieswith de!elopingcountrieswere also renegotiated%aswas the case in the +etherlandsand 1reland'with someimpro!ements$

On a!erage5Spain tends to be theworst among the # countriesin termso lowering withholding tax rates in itstreatieswith de!eloping countries$Spainsnew treatieswith Senegal

%=@#D' and +igeria %=@#' cementedthistrend$

D$= 3inancial and corporatetransparency

&anking scandals in some countries%notably .ermany and Sweden' turnedthe spotlighton the role o the inancialsector in Europe as ar as acilitatingtax dodging and money

!i

Patentboxesi!

The harmultax practicecommonlyknown as Kpatentboxes

launderingisconcerned$

Ownershiptransparency

!ii

continuesto spread in the EU$ Out o the=< EU 7ember States5 #= countriesha!e eitheralready introducedor are inthe process o settingup apatentbox5while .ermany isstill consideringtheoption$ ,espite the tough rhetoricagainsttax dodging rom manygo!ernments5it isnoteworthythat halo the EUspatent boxes ha!e beenintroducedwithin the last i!e years5

dispelling the notion that the EU haseecti!ely halted the implementationonew harmultax measures$ Se!eral othe countries co!ered in thisreport areeither adopting %1taly' or preparinglegislation to adopt apatentbox %1reland'in =@#$ ,espitethe newly

adopted OE), &EPSpackage5 whichincludesnew guidelinesonpatent

boxes5 existingpatent boxes can ; inaccordance with the guidelines; continuebusinessas usual until =@=#$

Tax treaties!

The number o tax treatieswithde!eloping countries continuestoincrease5but the increaseishigher in

some countries%such as in:uxembourg'than others %or example5in Sweden where no new treatieswithde!eloping countries came into orce inthe period co!ered in thisreport'$Other countries%such as 2ungar y5Slo!enia and &elgium' are expanding


33/176

theirtreatynetworkwith low-taxjurisdictions$

,uringthe EUnegotiationson theanti-moneylaunderingdirecti!etowards theend o=@#D5some

countriesplayeda

constructi!erole

%including3ranceand1taly'5whileothersplayeda morenegati!e role%suchas

.ermany5SpainandPoland'$2owe!er5 asthedirecti!e isbeing

implementedbythe EU7emberStates5

it isbecomingclearthat

countries thattookthemostambitious

stand in the negotiationsare not theones showingleadershipinimplementation$&oth 3rance and1talyha!e rejected the idea oestablishingapublic registerorbeneicial owners o companies5orexample$ The U9 isin ad!ancedstageso introducingapublic registero thebeneicial owners o companiesbutregrettably not or trusts$ 1t seems theywill be joined by Slo!enia and ,enmark5which both state that they plan toimplement registersthat will bea!ailable to the public without anyLualiying criteria$Unlike the U95

Slo!enia and ,enmark are eitherin theprocess o restricting5on in the case oSlo!enia ha!e rerainedrom oering5alternati!eopportunitiesor concealingownership5such as trusts5 or example$

Some o the most troublingcountriesare still:uxembourg and .ermany5which together oer a di!erseset ooptions or concealingownershipandlaunderingmoney$ 2owe!er5 a

signiicantnumber o countriesha!enot yet ormed apositionand willhopeully decide to implementully

public registers in the year to come$


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Public reporting or multinational corporations!iii

:arge mo!ementsha!e been seen on country by country reportingo!er the past year$ O the # countriesco!ered in the report5 nine go!ernmentsstate that theyintend to implementthe OE), &EPS recommendations%3rance5 .ermany5 1reland5:uxembourg5 Poland5Slo!enia5 Spain5 Sweden and the U9'5 which will keep thereporting conidentialand only apply to !ery largecompanies$Theormerchampion53rance5 isno longer pushingthisdemandand has instead joined the group o countriesintroducingconidentialcountry by country reporting$2owe!er5 somego!ernments%the +etherlands5 &elgium and the U9' ha!eindicated!arying degrees o willingnessto look into the

possibilityo making the inormationpublic$

ixD$? .lobal solutions

+one o the # countries co!ered in thisreportbroke with theoicial EU line at the Fuly=@# 3inancing or ,e!elopmentconerence5which regrettablyopposed and successullyblocked the establishmento an intergo!ernmentalbody ontaxation under the auspiceso the U+$ Amongall o the = on Taxrulingsas well as thenational chapters

ii$ 3or more inormation5see igure in section?$> on KTax0ulings

iii$ 3or more inormation5see section?$? on :etterboxcompaniesas well asthe national chapters

i!$ 3or more inormation5see section?$D on KPatentboxesas well as thenational chapters

!$ 3or more inormation5see section?$ on Taxtreatiesas well as thenational chapters

!i$ 3or more inormation5see the nationalchapters o .ermany and Sweden

!ii$ 3or more inormation5see section?$C on 2iddenownershipo companiesand trustsas well as the nationalchapters

!iii$3or more inormation5see section#$? on 4ill &EPS stop tax dodgingas well as the chapters on the European Parliament5the European)ommiss ion and the national chapters

ix$ 3or more inormation5see section?$ on Excludingde!eloping countriesrom decisionmakingas well as the nationalchapters

3ity Shades o Tax ,odging I =C


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?@ I 3ity Shades o Tax ,odging

Speciic indingsSee Appendix5p#@=5 or a key to the ollowing country rating system$

Transparency 0eporting .lobal solutions

EuropeanParliament

Tax treaties Transparency 0eporting .lobal solutions

The European Parliamentstresses that EU 7emberStates should use the U+model when negotiatingtax treaties with de!elopingcountriesand stresses theneed or policy coherenceor de!elopmentin thesetreaties$ The Parliamenthas also called or anEU-wide standard on taxtreaties5 and has called on7ember States to conductspillo!eranalyseso theirtax treaties with de!eloping

countries$

The European Parliamentstood irm on the principlethat the public shouldha!e access tobeneicialownershipinormationinthe negotiationson the newEU anti-moneylaunderingdirecti!e towards the endo =@#D$ 1t has sinceurged7ember States to gobeyondthe minimum reLuirementso the new directi!e byallowing unrestrictedpublicaccess tobasicinormationin the beneicial ownership

register$

The European Parliamentin =@# discussedamendments to a directi!eto introducepublic country by country repor ting$ Acomor table majority!oted or the proposal andithas thus become the

positiono the Parliament$+egotiationson thedirecti!e are thought tobescheduled towards the endo =@#$

The European Parliamenthas repeatedly!oiced itssupport or the creationoan intergo!ernmentalU+body on tax5 last repeatedshortly beore the =@#3inancing or ,e!elopmentconerence$

&elgium Tax treaties Transparency 0eporting .lobal solutions

&elgiums model treaty A =@# 3AT3 re!iew ound The &elgian go!ernmentiscontainsmany aspects considerable shor tcomings oicially still awaiting thethat are not suitableor in &elgiumsanti-money outcome o the Europeande!eloping countries5but it launderingramework5 )ommissionimpactdoes include an anti-abuse but not in relationto the assessment on countryclause$ &elgium has more registrationand storing by country repor ting andtreaties with de!eloping o beneicial ownership will also conduct itsowncountries than the a!erage inormation$A taskorceyet nationalassessmentbeoreamong the countries to be set up will consider orming itsownposition$consideredin thisrepor t5 whether &elgium shouldbut &elgiumstreaties adopt a public registerowith de!eloping countries beneicial owners$ Trustson a!eragereduce the tax are not allowed underrates less than the a!erage &elgian law$among the countriesco!ered in thisrepor t$

The &elgian go!ernmentdoes not support theestablishmento anintergo!ernmentalU+ tax

body$

European

)ommission

Tax treaties

The )ommissiondoesnot seem to ha!e apublic

positionon EU 7emberStatesuse o tax treatieswith de!eloping countries$

The )ommissionproposal or the new EUanti-moneylaunderingdirecti!e did not initiallyinclude public accessto beneicial ownershipinormation$Ata late stageo the negotiationson thedirecti!e the )ommissionsuggested ha!ing somepublic access5but onlyamong those who candemonstrate a so-calledKlegitimateinterest5

without speciying what thiswould mean inpractice$

The )ommissionerincharge o taxation has onse!eraloccasions!oicedhispersonal supportor public country by country reporting5but the)ommissiondoes not as yetha!e a uniied positionontheissue$The )ommissionhasbeen openly hostile tothe European Parliamentsattempt topush orpubliccountry by countryreporting through the re!iew

othe Shareholders 0ights,irecti!e$ The )ommissioniscurrentlyconductingan impact assessment onpublic corporate reportingand willpresent itsindingsin early =@#> ater whichit isexpected to de!elopa more clear positiononpublic country by countr

re ortin $

A )ommunicationissuedin =@# by the )ommissionsuppor ted the !iew thatde!eloping countriesshould implementdecisionsmade by the OE), and .=@on tax$ Atthe Fuly=@#3inancing or ,e!elopmentconerencethe )ommissionrejectedthe establishmento an intergo!ernmentalU+body on tax$


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3ity Shades o Tax ,odging I ?#

0eporting .lobal solutions

The )/ech model treaty isbased on the OE), model5but itstreatiescontain amix o the U+ and OE),model pro!isions$The)/ech 0epublic has lesstax treaties with de!elopingcountries than the a!erageamong the countriesco!eredin thisrepor t5but the )/ech treaties withde!eloping countries ona!eragereduce thewithholding tax rates more

than the a!erageamong thecountries co!ered in thisrepor t$

The go!ernmentplanstopresent amendments toexistinglegislationinOctober =@# to implementthe new EU anti-moneylaunderingdirecti!e5 andexpectsthe new law to beeecti!e rom # Fuly=@#>$4hether the mandatoryregisterobeneicialowners containedin thedirecti!e will be madepublic or not isstillbeing consideredby the

go!ernment$Trustswereintroducedin =@#D andcurrentlyno registrationisreLuired$

The )/ech go!ernmentsposition on country bycountry repor ting isnotknown$

The oicial position othe )/ech go!ernmentisnot supporti!e o anintergo!ernmentalU+bodyon tax$

,enmark Tax treaties Transparency 0eporting .lobal solutions

,enmarkstreaties withde!eloping countrieswere5until the mid-#CC@s5largely based on the U+model5 but ha!e sincethenbeen based on the OE),model$ A contro!ersial

treaty with .hana sparkeda Parliamentary hearingin April =@# on ,enmarkstreaties with de!elopingcountriesbut did not seemto bring any signiicantacknowledgement romthe go!ernmento theneed to change negotiation

practices$ The go!ernmentdoes not plan to conducta spillo!eranalysiso itstreaties$ +ew legislationintroducedin =@# meansthat all o ,enmarks

tax treatiesnow include ananti-abuse clause$,enmark has ewertreaties with de!elopingcountries than the a!erageamong the countriesco!ered in thisrepor t5but,enmarkstreaties withde!eloping countriesona!eragereduce withholdingtax rates more thanthe a!erageamong thecountries co!ered in thisrepor t$

3ollowing a number oscandals relating to shellcompaniesset up in,enmark the go!ernmentannounced in late =@#D thatit intendedto set up a ullypublic registerobeneicial

owners o companies$Theregisterisexpected tobeimplementedby late spring=@#>$ The new go!ernmentthat took oice in Fune =@#has not announced anychanges to these plans$ 1n=@# it was also decidedthat bearer shares are to

be phased out and apublicregistero shareholderswas introducedin Fune$

The go!ernmentpositionon country by countryrepor ting remainsunclear$2owe!er5 with electionsin Fune =@# a majorityagainst,enmarkspubliclisto tax paymentsby

big companiesemerged5although a legal proposalto remo!e the listshas notyet been put or th$ 4iththis de!elopment the

prospects or aParliamentarymajority or public country by countr y repor tingseem less likely than

beore$

The oicialpositionothe ,anishgo!ernmentisnot supporti!e o anintergo!ernmentalU+bodyon tax$

)/ech 0epublic Tax treaties Transparency


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?= I 3ity Shades o Tax ,odging

3rance Tax treaties Transparency 0eporting .lobal solutions

3rance isonly surpassedby the U9 in the numbero treatiesit has withde!eloping countries$Thetreaties are exclusi!elybased on the OE), model$The 7inistry o 3inancerecentlychangedpositionand saysit now supportsthe introductiono anti-abusepro!isionin 3rancestreaties$ On the otherhand5 3rancestreaties ona!eragereduce the

withholding rate by ?$##percent5 which ismore thanthe a!erageamong thecountries co!ered in thisrepor t$ A =@#D treaty with)hina showed that 3rancecontinuestopress or lowerrates in itstreatieswithde!eloping countries$

3rance is repor ted to ha!eplayed a constructi!erolebypromoting beneicialownershiptransparencyas a priority during the EUnegotiationon a new anti-money launderingdirecti!e$1na disappointingmo!e5the 3rench authoritiesin=@# saidthey do notplan to go beyond theminimum reLuirementso the directi!e in allowingaccess tobeneicial

ownershipinormation5butwill insteadlimit it to thosewith a Klegitimateinterest$2owe!er5 the authoritiessay they intend to applyas wide an interpretationo Klegitimateinterestaspossible5but ha!e notyetpro!ided an oicialdeinition$ A law drawn up in=@#? would create apublicregisteron trusts5but thedecree implementingthelaw has stillnot been issued$

2a!ing or yearsbeen 3rance warmly supportsan ad!ocateor more the Paris-basedOE),corporate transparencyby and its&EPSprocess$multinational companies5 The 3rench go!ernmentthe 3rench go!ernment has repeatedlymadedisappointingly said clear that it does notin =@# that it will not support the creationo anunilaterallyadopt public intergo!ernmentaltax bodycountry by country under the U+ and was onerepor ting and instead o the most acti!e blockers

plans to ollow the OE), o thisproposal during the&EPS recommendations$ Fuly=@# 3inancing or3ollowing the launch o ,e!elopmentconerence$the &EPS plan in October5

the 3rench go!ernmentconirmedin a communiLu*itsintention to adopt theconidentialcountry bycountry model by the endo the year aspar t o itsbudget bill$

.ermany Tax treaties Transparency 0eporting .lobal solutions

Only three countriesamongthose co!ered in thisrepor tha!e more treatieswithde!eloping countriesthan.ermany$ 1nitsnegotiationswith de!eloping countries5.ermany relieson its=@#?model tax treaty whichgenerallydraws on theOE), model5 but saysitalso allows or the inclusiono elements rom the U+

model$ A recent re!isiono its treaty with thePhilippines; one amonga si/ablenumber o newtreaties with de!elopingcountries; includessigniicantreductions inthe withholding tax rates$This isin line with thegeneral trend5 which showsthat on a!erage.ermanyhas reduced withholdingratesby more than ?$

percentagepointsin itstreaties with de!eloping

countries5well abo!ethe a!erageamong thecountries co!ered in thisrepor t$

.ermany isrepor ted toha!eplayed a negati!e roleduring EU negotiationsona new directi!e on anti-money launderingat theend o =@#D5 objectingto the establishment ocentralised registers obeneicial owners andto public access to suchinormation$2owe!er5sincethe implementation

o the directi!e isnot yetcompleted5 an oicialgo!ernmentposition onwhether the public willbeallowed access tobeneicialownershipinormationin.ermany isstillawaited$3AT3 in a =@#D re!iew notedshortcomingsin .ermanyscurrent systemo storingbeneicial ownershipinormation5and also notedwith concern the lack otransparencyo .ermanystreuhand undsR5 a orm o

trust$ O the # countriesco!ered in thisrepor t5.ermany isestimatedtoha!e the second highestmoney launderingrisk$

The .ermango!ernmentplans to introduceconidentialcountry bycountry repor ting in linewith the OE), &EPSrecommendations$Thego!ernmentexpectsthisreLuirementto be appro!edby the end o =@# andor it to take eect rom=@#>$ .ermany does notappear to be considering

public country by country repor ting$

,espitestatingthat closecollaboration withde!eloping countriesisoutmost impor tanceR toight illicit inancial lows5the .ermango!ernmenthas or yearsopposedthe establishmento anintergo!ernmentalU+bodyon tax5 and reairmedthis

positionin the Fuly=@#3inancing or ,e!elopment

negotiations$


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3ity Shades o Tax ,odging I ??

2ungary Tax treaties Transparency 0eporting .lobal solutions

2ungar y has less thanthe a!eragenumber otreaties with de!elopingcountries5 and none withlow-incomecountries$ 1tisnot clear whether itstreaties with de!elopingcountriesgenerallyollowthe U+ or OE), model$ 1nthe last ew years2ungar yhasbeen !er y act i!e innegotiating treaties withlow-tax jurisdictions$2ungar y has on a!erage

reduced the withholdingtax rates in itstreatieswithde!eloping countrieslessthan the a!erageamong thecountries co!ered in thisrepor t$

A =@# OE), re!iew notedthat 2ungar y does notreLuire oreign companiestradingin the country topro!ide ownershipdetailsor proo o the identity othose in!ol!ed5 and notedthat the same was alsothe case with ownershipinormationon par tners inoreign par tnerships$Thisisall the more concerningsince2ungar y has anextensi!enumber o SPEs

with data showinglargelows o 3,1 through these$The go!ernmentspositionon making beneicialownershipinormationpublicly a!ail able isnotknown$

The go!ernmentspositionon country by countryreporting isnot known$

The go!ernmentspositionon the establishmentoan intergo!ernmentalbody on tax isnot known5but 2ungar y did notde!iate rom the oicialEU line during the Third3inancing or ,e!elopmentconerencein AddisAbaba$The oicial EU line wasagainstthe establishmento an intergo!ernmentalU+taxbody$

1reland Tax treaties Transparency 0eporting .lobal solutions

1relandgenerallyollowsthe OE), model innegotiationsbut statesthat it iswilling to considerother countriesmodeltreaties when negotiatingwith de!eloping countries$Togetherwith Slo!enia51relandhas the lowestnumber o treaties withde!eloping countriesco!ered in thisrepor t$A treaty with Hambiawas renegotiatedin=@# and showed someimpro!ementson whatwasoriginally a treatyuna!ourableto Hambia$Publicationo a spillo!eranalysis5expected in early=@#5 came with the &udget=@#> in October =@# %toolate or detailedanalysisin thisrepor t'$ 1relandhasgenerallynegotiated lowertax rate reductionsin itstreaties with de!elopingcountries than the a!erageamong the countriesco!ered in thisrepor t$

A =@# re!iew by the)entral &ank re!ealedsome challenges in the1rishinancial sector

in terms o customerand beneicial owner!eriication$ Thego!ernmentplansor a relati!ely Luickimplementationo the newEU anti-moneylaunderingdirecti!e by =@#>5 but hasnot yet stated whetheror not to gi!e the publicunrestricted access tothe registerobeneicialowners$

The 1rishgo!ernmentsaysit supports theOE), &EPSrecommendations or

country by country reporting5 stressingthe need or taxpayerconidentialityR and orkeeping the inormationwith tax administrationsonly$ 1relandalso supportsthe OE), recommendationthat only companieswithan annual turno!erabo!e

@ million shouldbesubjectto the repor tingreLuirements$

,espite an ambition oplaying a strong role inglobal eor ts tobringabout a airer and more

transparent internationaltax systemR5the 1rishgo!ernmentdoes notsupport the establishmento an intergo!ernmentalU+body on tax5 as witnessedduring the Fuly=@#3inancing or ,e!elopmentconerence5whereinstitutionalprolierationRwas cited as a concernbythe go!ernment$


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?D I 3ity Shades o Tax ,odging


:uxembourg Tax treaties Transparency 0eporting .lobal solutions

:uxembourg has arelati!ely low number otax treaties with de!elopingcountriesbut israpidlyexpandingitstreatynetwork in =@#5 includingwith a large number ode!eloping countries$Two o the most recenttreaties; with :aos and Sri:anka ; include reducedtax rates on di!idends$The go!ernmentstatesthat all o :uxembourgstreatiesollow the OE),

model$ Amongthe #countries co!ered in thisrepor t5 :uxembourg has ona!eragethe least reducedtax rates in itstreatieswithde!eloping countries$

A =@#D re!iew o the anti-moneylaunderingcompliancein :uxembourgnotes impro!ements5but also ound that the:uxembourgbusinessregisterdoes not recordthe beneicial owner in allcases$+ew structures suchas the so-called K3reeportand Kthepatrimonialundcould ur ther worsen thesituationon beneicialowner transparency$Othe # countriesco!ered in

thisrepor t5 :uxembourgisestimatedas ha!ing thehighestmoney launderingrisk$1t isnot yet known howand when the :uxembourggo!ernmentwill implementthe new EU anti-moneylaundering directi!e orwhether it will adopt a

publicregisterobeneicialowners$

The :uxembourggo!ernmenthas drawnup new transerpricinglegislationthat includescountry by countryrepor ting along the linesothe OE), &EPSrecommendation5meaningthat the inormationwillbe conidentialand thatthe repor ting standard willonly apply to companieswith a turno!erabo!eO@million$ The 7inistero3inancein 7arch conirmed

that :uxembourg does notsupport making the country by country repor tinginormationpublic$

:uxembourg oten arguesthat neither :uxembourgnor the EU can go tooar in reormingtheir taxsystemsdue to the needor a global le!el playingield$+onetheless5 the:uxembourg go!ernmentdoes not support theestablishmento anintergo!ernmentalU+bodyon tax5 which could decideon global standards$

1taly Tax treaties Transparency

The go!ernmentsays1talystreaties are primarily basedon the OE), model but thatthe U+ model isanothersource o reerence$Amongthe countriesin thisrepor t51talyisonly surpassedbythe U9 and 3rance in termso the number o treatieswith de!eloping countries$A =@#D treaty signed withthe0epublic o the )ongocoincided with theannouncement o a major

expansionin the country by1talianoil giant E+1$+o newtreaties with de!elopingcountrieswere concludedin =@#$ On a!erage51talyhas negotiatedlowertax rate reductionsin itstreaties with de!elopingcountries than the a!erageamong the countriesco!ered in thisrepor t$

Aslate as the end o =@#D5the 1taliango!ernmentexpressed supportor public registersobeneic ial ownership$&ut ollowing the EUcompromiseon theanti-moneylaunderingdirecti!e5 which it helpedorm as holders o the EU

presidencyat the time5 thego!ernmentdisappointinglysaysit nowplans to restrictaccess to the registerto

those with a Klegitimateinterest$1talyisestimatedas ha!ing the third highestmoney launderingriskouto the # countriesco!eredin thisrepor t$

The go!ernmentspositionon country by countryreporting isnot known$

The oicialpositionothe 1taliango!ernmentisnot supporti!e o anintergo!ernmentalU+bodyon tax$


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3ity Shades o Tax ,odging I ?

+etherlands Tax treaties Transparency

1ngeneral5 the +etherlandsuses the OE), model butstates that it iswillingalso draw on the U+model in negotiations withde!eloping countries$The,utch go!ernmentisnowtaking steps to includeanti-abusepro!isionsinitstreaties with de!elopingcountries$The go!ernmentstates that it iswilling toaccept higher tax rates initstreaties with de!eloping

countries than other wise5but data shows that the+ether lands isgenerallymore aggressi!einnegotiatinglower rates initstreaties with de!elopingcountries than the a!erageamong the countriesco!ered in thisrepor t$ The

+etherlands al so has moretreaties with de!elopingcountries than the a!erageamong the countriesco!ered in thisrepor t$

A recent re!iew by the,utch )entral &ank notedailingsin collectingbeneicial ownershipinormationamong theimpor tant trust oicesthat manage many othe countrysletterboxcompanies$Accordingtoestimates5 the +etherlandshas a relati!ely high risko money laundering; theith highestamong thecountries co!ered in this

repor t$ The ,utchgo!ernmentsaysit doesnot support public accessto beneicial ownershipinormation$

Poland Tax treaties Transparency 0eporting .lobal solutions

Accordingto the Polishgo!ernment5as a rule itollows the OE), model butalso allows or elementsrom the U+ model$2owe!er5 the go!ernmentstates that it would not usethe U+ model as a startingpoint in negotiationswithde!eloping countries$Polandrecentlystartedincluding an anti-abuseclause in itstreatieswithde!eloping countriesandhas the second lowesta!eragereductiono taxrates in treatieswithde!eloping countriesamong the # countriesco!ered in thisrepor t$Poland also has ewertreaties with de!elopingcountries than the a!erageamong the countriesco!ered in thisrepor t$

A =@# OE), re!iew ocorporate transparencyin Poland ound seriousshortcomingsin thea!ailability o identity andownershipinormationo oreign companies5onbearer shares5 and inrelationto people whoadm inistertrusts$ ThePolish go!ernmentis

repor ted to ha!e beenagainstpublic registersobeneicial ownershipduringthe EU negotiationson theanti-moneylaunderingdirecti!e5 but as o nowit has not communicatedoicially itsplans or anationalregisteror whetherthe public will ha!e ullaccess or not$ Accordingto estimates5Poland hasthe second lowest riskomoney launderingamongthe # countriesco!ered in

thisrepor t$

Poland isone o the EUsirstadopters o the OE),&EPS recommendationson conidentialcountryby country repor ting5while being one o thelatest adopters o theEU reLuirementsorpublic country by countryrepor ting orbanks 5 whichit has stillnot implemented$

Poland does not appearto be consideringthepossibilityo public country by country repor ting$

The Polish go!ernment hasstated that it needs toanalysethe establishmentoan intergo!ernmentalU+tax body beore deciding$2owe!er5 Poland did notde!iate rom the oicialEU line during the Third3inancing or ,e!elopmentconerencein AddisAbaba$The oicial EU line was

againstthe establishmento an intergo!ernmentalU+taxbody$


The ,utch Parliamentin=@#passed a resolutioncalling or public countryby country repor ting andthe go!ernmenthasexpressed itssupport orthe samein a letter to the European)ommission$+e!er theless5the ,utch go!ernmentannounced in itsSeptember=@#budget that it willbeimplementing the OE),&EPS recommendations

on country by countryrepor ting5 which wouldkeep the inormationconidentialand wouldapply to companieswitha turno!erabo!e O@million$ The go!ernmentcan5 howe!er5 still makegood on itspromisetosupport public countryby country repor tingduring negotiations o!erthe Shareholders 0ights,irecti!e5 in which case the

+ether lands would recei!e

a reen ratin $

Aheado the Fuly=@#3inancing or ,e!elopmentconerence5the ,utchgo!ernmentidentiied theight againsttax dodgingas one o itstop three

priorities$+onetheless5 thego!ernmentdid not supportthe establishmento anintergo!ernmentalU+bodyon tax$


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?> I 3ity Shades o Tax ,odging

Slo!enia Tax treaties Transparency 0eporting .lobal solutions

The go!ernmentsaysitstreaties with de!elopingcountriesare not basedsolelyon either the U+or OE), model$ Togetherwith 1reland5Slo!eniahas the ewest treatieswith de!eloping countriesamong the countriesco!ered in thisrepor t$Slo!enia alls justbelowthe a!eragetax ratereduction in itstreatieswith de!eloping countriescompared with the #

countries co!ered in thisrepor t$

The Slo!ene go!ernmentsaysitplans to implementa registerwhere thegeneral public will ha!eaccess tobasicinormationon beneicial ownerswithoutany Luali yingcriteria$Thosethat candemonstrate a Klegitimateinterestwill ha!e access toa wider set o inormation$The go!ernmenthas notyet deined Klegitimateinterestbut plans to ha!ea legislati!eproposal

de!elopedand passedby the end o =@#$ Theupcoming decisions onhow much inormationtopublish and how todeine Klegitimateinterestwill determinewhetherSlo!enia will ha!e atruly public register obeneicial owners5butthe announcementsshow apositi!eintention$1naddition5 Slo!enia isestimatedas ha!ing thelowest risko money

laundering among the #countries co!ered in thisrepor t$

The go!ernmenthas notyetput orth a legislati!e

proposal or country bycountry repor ting but saysit supports the OE), &EPSmodel and stresses thatthe inormationshouldbekept conidential$Thego!ernmentimplementedthe capital reLuirementsdirecti!e in =@#5 but hasstill not implementedthe ar ticle containingthepublic country by countryrepor ting reLuirementor

banks5but says the &anko Slo!enia will clari y whatisreLuired to the countrys

banks$

The go!ernmentsaysit supports thecall to establishanintergo!ernmentalbody ontaxation under the auspiceso the U+$ 2owe!er5Slo!eniadid not de!iaterom the EU line duringthe Fuly=@# 3inancing or,e!elopmentconerence5where the EU blocked sucha measure$

Spain Tax treaties Transparency 0eporting .lobal solutions

Spain primarily ollows theOE), model in tax treatynegotiations5but doesinclude an anti-abuseclause$ Treatiesconcludedwith Senegal and +igeria in=@#D-# showed signiicantreductions in withholdingtax rates5 and thisollows

a general pattern as Spainisby ar the mostaggressi!enegotiatorothe# countriesco!ered inthisrepor t when it comesto reducingwithholding taxrates in itstreatieswithde!eloping countries$Ona!eragethe withholdingrates in these treatiesha!e been reducedby $D

percentagepoints$Spainalso has more treatieswithde!eloping countriesthanthe a!erageamong thecountries co!ered in thisrepor t$

The go!ernmenthas not yetdecided the le!el o accessitwill grant to the publicwhen implementing thenewEU anti-moneylaunderingdirecti!e$2owe!er5 the go!ernmentsaysit was stronglyagainstincluding apro!isionorpublic beneicial ownershipregistersin the directi!ewhen it was negotiated5which makes it likely thatthe go!ernmentwill notgrant public access toa registerobeneicialowners$ Spain isestimatedas ha!ing the our th highestrisko money launderingamong the countriesco!eredin thisrepor t$

Spain will implementcountry by countryrepor ting in linewith the OE), &EPSrecommendations5 thego!ernmentannounced in=@#$ 1t does not appear tobe consideringthepossibilityo public countryby country repor ting Thisimpliesthat it will not makethe inormationpubliclya!ailable and that it willonly apply to companieswith a turno!erabo!eO@million$

Spain ollowed the EUline o opposinganintergo!ernmentalU+body on tax during theFuly=@# 3inancing or,e!elopmentnegotiations$2owe!er5 the go!ernmentsaysthe establishmentshouldbe studiedprior toany decision5and considersit necessary to at leastreinorce the current U+tax exper t committee$


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3ity Shades o Tax ,odging I ?

Sweden Tax treaties Transparency 0eporting .lobal solutions

Accordingto thego!ernment5Swedishtreaties with de!elopingcountriesdier and do ingeneral primarily ollow theOE), or U+ model$ Amongthe # countriesco!ered inthisrepor t5 only two othersha!e on a!eragereducedthe tax rates in theirtreatieswith de!elopingcountriesmore$ Swedenalso has more tax treatieswith de!eloping countriesthan the a!erageamong the

countries co!ered by thisrepor t$ The go!ernmentdoes not plan to conduct aspillo!eranalysiso itstaxtreaties$

The go!ernmentisstillundecidedon whether toallow wide public accesstobeneicial ownershipinormation$ApublicinLuiry was appointedatthe end o =@#D toprepareaproposal on how toimplement the new EUanti-moneylaunderingdirecti!e in Sweden andwill include an assessmenton whether the registerobeneicial owners shouldbe public$ The inLuir y has

been delayed and has stillnot presented itsindings$,espitetwoprominentSwedish banks comingunder scrutinyor moneylaunderingin =@#5 Swedeniso!erall estimatedasha!ing the third lowestmoney launderingriskamong the countriesco!eredin thisrepor t$

Althougha legislati!e Sweden does not supportproposal has not yet been the establishmento anput orth5 the Swedish intergo!ernmentalU+bodygo!ernmenthas said on tax5 preerringinsteadtothat it intendsto ollow see a stronger in!ol!ementthe recommendations o de!eloping countriesinon country by country the OE), &EPS

process$ repor ting under theOE), &EPS project5 anddoes not appear tobeconsideringthe possibilityo public country by country repor ting$ This wouldkeep the repor tingconidential and would only

co!er companieswith aturno!er abo!e @million$

United 9ingdom Tax treaties Transparency 0eporting .lobal solutions

The U9 has one o thelargest treaty networksin the world and isstillexpanding5with newtreaty negotiations withde!eloping countriesin=@#$ 4orryingly5 theU9 isonly surpassedbyone country out o the# co!ered in thisrepor twhen it comes to thea!eragereductiono taxrates in itstreatieswithde!eloping countries$Onthe positi!eside5thereappears to be some minor

recognitiono the linkbetween de!elopmentandtax treatiesas ,1, isnowconsulted annually5 andde!elopmentobjecti!esare now par t o the 270)strategic plan$ 2owe!er5thishas not yet resultedin any noticeable change$The go!ernmentcontinuesto oppose the idea oconducting spillo!eranalysiso itstax systemonde!eloping countries$

The U9 was the irstEU The U9 hasbeen onecountry topass legislation o the irstcountriestoto reLuirea public register commit to implementingo beneicial owners and the OE), &EPS countrythereby pro!ided crucial by country repor tingcredence to thisidea during recommendations5 withEU negotiationson a new the 7arch =@#budgetanti-moneylaundering creating the legal powersdirecti!e$ 2owe!er5 in the or the Treasury tosame negotiations the U9 introducelegislationalongis repor ted to ha!e played these lines$The debate ona negati!e role bypushing whether the inormationor a weak compromiseon shouldbe public hastrusts$ The U9 allows the been ongoing and mostestablishmento trusts5 par tiesaddressed it in

andthese are not co!ered their election maniestosby the countryspublic ahead o the 7ay =@#beneicial ownership .eneralElections$ Theregister$Amongthe U9s )onser!ati!e Par ty thatO!erseasTerritoriesand ormed the go!ernment)rown ,ependencies5there ollowing elections hasare so ar no signso any committed to consideringsubstantial mo!estowards the case or making country public registers$ by country repor ting

publicon a multilateralbasis5andit thereoreremainstobeseen whether the U9 willsupport thisor not$

The U9 go!ernmentwasone o the keyblockers oan intergo!ernmentalU+body on taxation duringthe Fuly=@# 3inancing or,e!elopmentconerence$


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?< I 3ity Shades o Tax ,odging

Recommendations

0ecommendationsto EU7ember States andinstitutions

There are se!eralrecommendationsthatEU 7ember States and the EUinstitutionscan ; and must; take orwardto helpbring an end to the scandal o taxdodging$ They are"

#$ AdoptunLualiied publiclyaccessibleregistrieso the

beneicial owners o companies5trusts and similarlegal structures$ The transpositionothe EU anti-money launderingdirecti!e pro!idesan importantopportunityto do so5 and go!ernmentsmust makesure to gobeyond the minimumreLuirementso the directi!e byintroducing ull public access$

=$ Adoptull countryby countryreporting or all large companies

and ensure that this inormation ispublicly a!ailable in an open dataormat that is machine readableand centralisedin a public registry$This reportingshouldbe at least ascomprehensi!eas suggested in theOE), &EPS reportingtemplate5#


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>$Establishanintergo!ernmentaltaxbodyunder

the

auspicesotheU+withtheaim oensuringthatde!elopingcountr

iescanparticipateeLuallyin theglobalreor

mointernationaltaxrules$

Thisorumshouldtakeo!ertherolecurrentlyplayedby theOE),

tobecome themainorumorinternationalcooperationin tax

matters andrelate

d

transparencyissues

$

$ All EUcountriesshould

publishdatashowingthe low

oin!estment

sthroughspecialpurposeentitiesintheircountries$


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Euroean!arliament

3ity Shades o Tax ,odging I ?C

Whatworries me

most is the fact

that the reported

practices &revealed

in'u('eaks)were

manifestly legally

possible in some

countries. This

reality means that

we need to urge

the *ember +tates

to work with us to

end systematicta(

evasion practices

in ,urope- be it in

'u(embourg or any

other country.

7artin Schul/5President o theEuropeanParliament#


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D@ I 3ity Shades o Tax ,odging

Tax rulings 3inancial and corporate transparencyTheEPcalledoralltaxrulingstobemadepublicasarback as =@#?5 long beore the :ux:eaks scandal broke$#CC

Alongthe same lines5 during the EPsre!isiono theShareholders0ights,irecti!e5 an amendment was addedthat would reLuirebig multinational companies to publiclydiscloseessentialelements o and inormationregardingtax rulings$R=@@ The amendment passed comor tably5 with thesupport o D@< 7EPs$ 3ur ther recommendationson the taxrulingsare expected to emerge rom the specialcommitteeset up ater :ux:eaks$=@#

Tax treaties1nitsFune =@# report on tax and de!elopment5the EPpointed out that tax treatiesha!e become a key toolor transnationalenterprisesshitingtheir proitsouto the countrieswhere the proitsha!e been earned5 tojurisdictionswhere 7ultinational )ompaniescan pay littleor no taxes$R=@= 1nrelationto tax treatieswith de!elopingcountries5the Parliament included the ollowing soundrecommendation"when negotiatingtax and in!estmenttreatieswith de!eloping countries5 income or proitsresultingrom cross-border acti!itiesshouldbe taxed in thesource country where !alue isextractedor created$R=@? 3or

thispurpose5 the report stressed that the U+ model makessure thishappensby gi!ing a air distributiono taxingrightsbetween source and residencecountriesR5and inallyhighlighting the obligation EU 7ember States ha!e to complywith the principle o policy coherence or de!elopmentwhen negotiating treaties with de!eloping countries$=@D 4iththese recommendations5 the EP demonstrates a soundunderstandingo the challenges that tax treatiespose tode!eloping countries5and rightly identiies the U+ model asabetter option compared to the OE), model$

A =@#? EP report on taxation encouraged the )ommissionto work on common standards or tax treatiesbetween

7ember States and de!eloping countrieswith the purposeo a!oiding taxbase erosionor these countries$R=@ TheParliamentsspecial committee5 set up ater :ux:eaks5 is

&eneicial ownership

The Parliamenthas stood strong on the principle that thebeneicial owners o companiesand trusts should not besecret$ 1na landmark !ote in 7arch =@#D5 >D? 7EPs !otedor thissimpleprinciple %with only ?@ !oting against'$=@


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3ity Shades o Tax ,odging I D#

Automaticexchange o inormation1nrelationto automaticexchange o inormation5the EPAnnual0eport on Taxation =@# included a strong and

progressi!erecommendationor the inclusiono de!elopingcountriesthrough pilotprojectsQ with de!eloping countriesto be implementedor a transitionaland non-reciprocalperiod when implementingthe new global standard$R=#

The =@# tax and de!elopmentreport passedby the EP inFune reairmedthis recommendation=#> and added thatcontinuing support in terms o inance5 technicalexpertiseand time isneeded to allow de!eloping countriesto build thereLuired capacity to send and process inormation$R1t was

importantto stress5 the report added5 that the new OE),.lobal Standard on AutomaticExchange o 1normationincludesa transitionperiod or de!eloping countries5recognisingthat by making thisstandard reciprocal5thosecountries that do not ha!e the resources and capacity toset up the necessary inrastructureto collect5 manage andshare the reLuiredinormationmay eecti!ely beexcluded$R=# 4ith these recommendations5 the EP has shown

.lobal solutionsThe EP has stronglysignalleditssupport or the creationo an intergo!ernmentalU+ body on tax$ This has beendone through its=@# AnnualTax 0eport and through thede!elopmentcommitteesreport on taxation$=== 1nthe latter5the EP urges the EU and the 7ember States to ensure thatthe U+ taxation committeeistransormedinto a genuineintergo!ernmentalbody5better eLuippedand with suicientadditionalresources5 insidethe ramework o the U+Economic and Social )ouncil5 ensuring that all countriescanparticipateon an eLual ooting in the ormulationandreormo global tax policies$R==? )oming a month beore

the 3inancing or ,e!elopmentsummitin AddisAbaba5therecommendationwas an importantsignal$2owe!er5 as withmany o the EPsprogressi!erecommendationson tax5the EUs7ember States are not bound by it in any way andunortunatelychose to ignore it$

)onclusionitselasleaderintheEUwhenitcomestotheinclusiono de!eloping countriesin the automaticexchange oinormation$

EU solutions

Althoughthere are se!eralgroups in the EP that arescepticalo the EU5 a broad majority o 7EPs are stillina!our o more EU in!ol!ement on tax$ The EP has repeatedlyencouraged the European )ommission to take a moreproacti!e role on tax justice5not least exempliied in thehearingso !arious)ommissioners in the special committeeon tax rulingsin =@#$=#< The EP has also long been a strongsupporter o the )))T&proposal or tax coordinationacrossthe EU5 apositionreiteratedin =@#$=#C The Parliaments

=@# AnnualTax 0eport

also stressesthat coordina

tedactionat EU le!el Q isnecessary topursue the application

o standards o transparencywith regard to thirdcountries$R==@

2owe!er5 the EP has alsobeen critical o the current waythat tax coordinationtakesplace in the EU5 inparticularwiththe secreti!e)ode o )onduct .roup on &usinessTaxationthat meet under the EU )ouncil$ 1n=@#5 the EP called ora re!iew o the groupsmandate in order to impro!e itseecti!enessand pro!ide ambitiousresults5 or examplebyintroducing the obligation to publishtaxbreaks and subsidiesor corporationsRand also asked the group to be more

transparent bypublishingan o!ersighto the extent to whichcountriesmeet the recommendationsset out by the group initssix-monthlyprogress report to the inance ministers$R==#

Theseproposals would all be welcomed correctionsto thelargely ineecti!e )ode o )onduct .roup$

,espite the broad political representationand di!ersity inthe European Parliament5it isnotewor thy that 7EPs ha!ebeen able to agree on a number o !er yprogressi!erecommendationsor 7ember States and the )ommissionwhen it comes to tax$ 4hat ispar ticularly encouragingis that the EP has shown itscommitmentto addressinghow the EUstax policies aect de!eloping countriesandha!e proposed se!eraluseulpolicy solutions$The EP hasnot only put orth policy ideas5it has also ought or reallegislati!e!ictorieson tax justice5most notably perhapson the Anti-7oney:aundering,irecti!e and most recentlyin itsre!iew o the Shareholders0ights,irecti!e$ 4herethe EP hasbeen most eecti!e so ar isinpushingorcorporate transparencymeasures5 where it has co-decision

powers$ 2owe!er5 on issues directly linked to tax policies5the EU treatiesgrant the EP ew legislati!epowers and

they are oten let on the sidelinesissuingnon-bindingrecommendations$==D This isunor tunate as the EU andits7ember States could learn a lot rom listeningto theParliamentscontinuedsupport or tax justice$

)ynics will say that powerul groups within the EPpreerissuingnon-bindingreports rather than ighting or realinluence5as exempliied in =@# by the hesitationirsttotopple Funcker o!er the :ux:eaks re!elations5ollowed by theailure to set up a strong inLuir y committeeto in!estigatetheleaks$ Then inally some groups hesitatedto supportpubliccountry by country reportingin a legislati!eproposal5despite ha!ing supported non-bindingcalls or such a

legislati!e initiati!e or years$1nspiteo itsshortcomingsinterms o legislati!epowers and somepolitical groupsunwillingnessto ight when it matters5 the EP ne!erthelessremainsone o the strongest alliesor de!eloping countriesand or tax justice$


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D= I 3ity Shades o Tax ,odging

EuroeanCommission

Tolerancehas reached rockbottomfor companies that avoid paying their fair share ofta(es- and for the regimes that enable them to do this. We have to rebuild the link between

where companies really make their profits and where they are ta(ed.

Pierre7osco!ici5 )ommissioner or Economic and 3inancial Aairs5Taxation and)ustoms==

.eneralo!er!iew

Aheado the European Parliamentappro!ing his appointment5European )ommission%E)'PresidentFean-)laude Funcker made it clear that heconsidersthis )ommissionto be the lastchance )ommissionR5statingthat either wesucceed in bringing the European citi/enscloserto Europe5 or we will ail$R==> Shortly atergetting the backing o 7EPs5 the :ux:eaksscandal broke and Funcker later had toadmit that it had let him weakenedR since:ux:eaks suggests that 1 took part in

operations that did not ollowbasic ethicaland moral rules$R==

Amidstthese contro!ersies5the)ommissionhas tried hard

Taxpolicies

1nline with the idea o the internalmarket5the E) has longpromoted the ree low ocapital within the EU$ The ParentSubsidiary ,irecti!e and 1nterestand0oyalties,irecti!e ha!e been key in thisregard5 as they ha!e remo!edthewithholding tax on cross-border lowswithin the EU$== 0electing the compromisereached between the U9 and .ermany5 the )ommissions

new proposal would ; i adopted; grant the )ommissionano!ersightrole on the number and type o tax rulingsissuedby 7ember States$ Apartrom ailing to discloseany newinormationto the public5 thisproposal also ailsde!elopingcountries5as only countrieswithin the EU would recei!e taxrulingsthrough exchange5 despitewhat eectsthe rulingsmight ha!e on the taxbase o countriesoutsidethe EU$

Pre!iousEU-wide guidelineson Ad!ancePricing Agreements%APAs'were de!elopedby an expert group and appro!edbythe )ommissionin =@@$=@ )i!il societyhas criticised theseguidelinesor ailing to deal with the potentialmisuse orulingsor aggressi!etax planning purposes$ =# 1t alsocriticised the act that the group that had written theguidelineswas dominatedby multinationalcompaniesandaudit irmswith a history o Luestionabletaxpractices$==

1na minor impro!ement5the )ommissionopened up or aslightlymore balanced compositiono the group when three

ci!il societyorganisationswere added as members in=@#$=? 4hether there are anyplans or the group to updatethe )ommissionsguidelineson APAsisyet unknown$ Anin!estigationin early =@# was launchedby the EuropeanOmbudsmanto make )ommissionexpert groups more

balanced and transparent$ This could potentially put anend to the pastpracticeso askingcompaniesand ad!isersembroiledin tax contro!ersiesor ad!ice on tax policies$=D

3inancial and corporate transparencyFunecorporatetaxpackageannouncedthatitwouldguide

7ember States to implementtheir patent boxes in line withthe OE),srecommendationsde!elopedunder &ase Erosionand Proit Shiting %&EPS'$ 1t urtherwarned 7ember Statesthat5 iprogress was not made within #= months on aligningtheir patent boxes with these recommendations5the)ommissionwould considerputting orward a legislati!e

proposal to orce through change$=D 4hile the )ommissionsocus on the problems associatedwithpatent boxes aremuch warranted5 it istroubling that it is relying on the OE),recommendationsto sol!ethe problems5 as thisapproachhasbeen criticisedor ailing to limit the proit-shitingopportunitiesinherentinpatentboxes$=D


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DD I 3ity Shades o Tax ,odging

Public countryby country reportingThe 7arch =@# tax transparencypackage announcedplans to conduct an impact assessment o public country bycountry reportingin the EU$= 4hile some had expected thelaunch o an initiati!e on public country by countryreporting in itsollow-up package on corporate taxation inFune =@#5 the )ommissioninsteadre-announced itsplansor an impactassessment and also added a publicconsultationto the process$ The )ommissionexpectstoha!e the impact assessment concluded at the latestby theirstLuarter o=@#>$=< 1t isunclear why a completelynew consultationand

impact assessment on public country by country reportingwas needed5 sincethe )ommissionconducted one orthe inancial sector as late as =@#D$ This ound that publiccountry by country reportingwould ha!e no signiicantnegati!e eectsR on the economy5 noting insteadthe

possibilityo some limited positi!eimpact$R=C Some ha!ethereoreraisedconcerns that the impact assessment isaway to delay action$=>@

The )ommission has !oiced scepticismtowards the EuropeanParliamentsattempt to introducepublic country by countryreportingin the shareholdersrights directi!e$ 3or example5while not rejecting the idea o thistype o reporting5the

)ommissioner or Fustice5)onsumer and .ender ELualityhas made it clear that she considersthe shareholdersrightsdirecti!e the wrong process to discussthistype o reportingstandard or multinational companies$=>#

On apositi!e note5 the )ommissionerin charge o taxationhas openly !oiced support or public country by countryreporting5statingpersonally51 am in a!our o ull tax

Automaticexchange o inormationThe )ommissionslagshipinitiati!e againsttax e!asionremainsthe crack-down on banking secrecythrough thesystemo automaticexchange o inormationbetween taxauthorities$Towardsthe end o =@#D5 a )ommissionproposalon this recei!ed backing rom all 7ember States$=> Sincethenimportantthird countriessuch as Swit/erlandha!e alsobeen brought onboard$=>> 1mportantas thisisor Europe5 itdeli!erslittle beneitsor de!eloping countries5because theirinclusionin the systemisnot currentlyconsidered$An expertgroup on automaticexchange o inormationpresented areport to the )ommissionin 7arch =@#5 recommendingthe

)ommissionto adopt a phased-in approach or de!elopingcountries that would allow them to reap the beneitsorecei!ing the inormationo nationalaccount holders abroad5while initially relaxing the reLuirementsor them to be ableto exchange inormationthemsel!es$=> 2owe!er5 there isstill little indication that the )ommissionwill considerthisrecommendation5raising the ear that de!eloping countrieswill not beneit rom the EUsattempt to make bankingsecrecya thing o the past$

EU solutions

Aterse!eralyearso inacti!ity5 the )ommissionhas inrecent yearstried to re!i!e the use o state aid in!estigationsto challenge harmultaxpracticesin 7ember States$The current cases ollow on rom the )ommissionsdecisionin Fune =@#? to look into the tax rulingspractices

=>= 2owe!er5 it remainsto be seen whetherin se!en7ember States5 which was later expanded to

the )ommissionas a whole can get behind public countryby country reporting$

&eneicial ownership

4hile the European Parliamentstood irm on the need orpublic registerso the beneicial owners in negotiationson the Anti-7oney:aundering,irecti!e5 the )ommission

proposal did not originally include access or the public$=>?

4henpressed during negotiationson the directi!e in late=@#D5 the )ommissionproposed a conusingcompromisewhereby only those members o the public who coulddemonstrate a Klegitimateinterestwould be allowed toaccess the inormation5without speciyingwho would Lualiyas ha!ing such Klegitimateinterest$=>D

all 7ember States in ,ecember =@#D$=>C This has so arresulted in six ormal in!estigationsbeing opened$=@ Thecases ha!e already been subjectto major delays5partlyrelectingnon-cooperation rom the 7ember States underin!estigation5=# and perhaps also relectingthat reportedlyonly nine )ommissionsta members are assignedto thehighly technical cases$== The )ommissionerin charge o thein!estigationshas tried to caution that thereare limitationsto what state aid tools can do$R=? The )ommissioner notesthat they cannot look into allproblematiccases and cannotredo tax rulings5and atbest the in!estigationscan hopeullyinspire7ember States to change their legislation$R=D

2owe!er5 such changes ha!e so ar been ew and ar between$


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3ity Shades o Tax ,odging I D

Accordingto inormationdisclosedby the )ommissionto theEuropean Parliamentsspecialcommitteeon tax rulings5the )onclusion

)ommissioninitiated>stateaidcasesinrelationtotaxationin the period #CCD to =@#=$ The least acti!e period in these #Cyearswas the i!e yearsleading up to =@#=5 when only twocases were initiated$= This compares to the D cases thatwere initiated in the i!e-yearperiod o #CC< to =@@=5 the i!emost acti!e yearsduring thisperiod$=> Againstthisbackdrop5it is clear that the pursuito the current six acti!e state aidin!estigationson tax are a welcome impro!ement$2owe!er5neitherrepresents aparticularlyuniLue or ambitiousle!el5when seen in a historicalperspecti!e$

The )ommissionhas always been the main dri!ing orcebehind the proposal or more coordinatedcorporate taxenorcement in the EU in the orm o the )))T&proposal$2owe!er5 as explained5the current plans to re-launch awatered down !ersiono the )))T&proposal has madesome war y o whether or not the proposal will actuallysucceed in achie!ing more than opening up new doors ore!en lower rates o taxation or multinationalcompanies$=

.lobal solutions

1mmediatelyater :ux:eaks5 the 3inance7inisterso.ermany5 3rance and 1talywrote a letter to the )ommissioncalling on it to de!elop a comprehensi!eR directi!e to tackletax dodging to be supportedby 7ember Statesby the end o=@#$=


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D> I 3ity Shades o Tax ,odging

"elgium

/sa member of the ,uropean Union- 0elgium has very little spaceto pursue its own economic policy. We must- therefore- be very

careful with ta( harmonisation. %iving up our niche policy would be

inappropriate.

Fohan GanO!ert!eldt5 &elgiums3inance7inisterin ,ecember =@#D=


55/176

Taxpolicies

Accordingto the7inistry oEconomyone o thetoptenreasons

orin!estingin&elgiumisitsKcompetiti!e taxregime$=


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3ity Shades o Tax ,odging I D

&ecause there ha!e been concerns that the )arat Tax schemecould constitutea orm o illegal state aid under the EU rules5the introduction o the new tax issubject to the prior appro!alo the European )ommission$?@@ A last example isthe reactiono the inance ministerGanO!ert!eldt to the news o a

possiblemerger betweenbrewing giantsA& 1nbe!and SA&7iller5 and related rumors that A& 1nbe!was consideringmo!ing itsheadLuarters out o &elgium$ 1nresponse5 the

PatentboxSince =@@pro!isiono the OE), in matters o tax a!oidancethroughmanipulationo transerpricing5 the so-called arms-lengthpricing principleR$ The &elgian la

Documents

1546494 Fifty Shades of Tax Dodging the Eu s Role in Supporting an Unjust Global Tax System