21st March 2012, European Economic and Social Committee

TAX AND FINANCIAL HAVENS:A THREAT TO THE EU’S INTERNAL MARKET

John ChristensenDirector, International Secretariat

Mission Statement

In an era of globalisation, the

Tax Justice Network is

committed to a socially just,

democratic and progressive

system of taxation. TJN

campaigns from an

internationalist perspective

for a tax system which is

favourable for poor people in

developing and developed

countries, and finances public

goods and taxes harmful

activities  which pollute and

cause unacceptable

inequality.

GLOBALISATION’S FAULTLINESTax havens are a fully networked and global

parallel financial economy: they are a core

feature of contemporary capitalism

Tax havens shape trade and investment patterns

as banks and major companies avoid

regulation and minimise tax.

Tax havens played a major role in shaping the

2007/08 financial crisis and in creating a

criminogenic economic environment

The big players in this parallel economy are

not tiny islands or obscure alpine

principalities: they include major and

influential countries like Switzerland, United

Kingdom and United States

The damage done: Microeconomic distortions harm market

competition

At the macro level, tax competition

shifts the relative costs of labour and

capital

Lack of transparency raises risk

premiums

Aggressive avoidance harms tax

systems and public finance, and

encourages economic free-riding

Secrecy increases the profitability of

economic crime

Encourages rent-seeking activities

Damages trust and institutional quality

For our purposes ‘secrecy’ describes a situation in which relevant information is not readily available on public record, where public record means a register that can be accessed free of charge or at low cost via the internet from anywhere in the world.

What do we mean by secrecy?

www.financialsecrecyindex.com

Knowledge of beneficial ownership

Key aspects of corporate transparency regulation

Efficiency of tax and financial regulation

International standards and cooperation

1 Banking secrecy

4 Public company ownership

7 Fit for information exchange

11 Anti-money laundering

2 Trust and foundation register

5 Public company accounts

8 Efficiency of tax administration

12 Automatic information exchange

3 Recorded company ownership

6 Country-by-country reporting

9 Avoids promoting tax evasion

13 Bilateral treaties

10 Harmful legal vehicles

14 International transparency commitments

15 International judicial cooperation

15 financial secrecy indicators

8

 

 

 

 

 

 

 

91-100

81-90

71-80

61-70

51-60

41-50

31-40

European countries including overseas dependencies by secrecy score – source: 2011 Financial Secrecy Index

 

AN, BM, LI, MS, TC

AD, AI, CH, GG, GH, GI, JE, KY, MC, SM, VG

BE, CY, DE, FR, PT

GB, HU, IE, IT, LV, MT, NL

DK, ES

AT, IM, LU

Exceptionally secretive

Moderately secretive

Proceed with reforms to strengthen the Savings Tax Directive, and promote automatic information exchange as the effective international standard; sanction non-cooperative jurisdictions

Adopt a Financial Reporting Standard on country-by-country reporting

Require full public disclosure of beneficial ownership of trusts, companies, foundations and similar legal entities

Adopt a Common Consolidated Corporate Tax Base and tax MNCs on a unitary basis

Strengthening the transparency and

governance of the EU’s internal markets “They serve no socially useful function. They exist only to circumvent norms. They undermine good governance.”

Joseph Stiglitz

Strengthen international cooperation with a primary objective of ensuring that national tax systems do not have negative external impacts on tax sovereignty elsewhere (UN Tax Committee proposals under Monterrey Consensus)

Define tax evasion as a corrupt activity within the scope of the UN Convention Against Corruption, and treat as a predicate crime under AML regimes (Financial Action Task Force)

Adopt an EU General Anti-Avoidance Principle and require professional associations (e.g. bankers, lawyers, accountants, trust administrators) to issue guidelines to their members on the use of secrecy jurisdictions

Enhanced cooperation'By eroding the revenue base, tax competition can become too much of a good thing… Bidding wars between countries can undermine the collective revenue base.  This increases the tax burden on the less mobile industries and on labour, relative to capital.'

Financial Times

“Shaxson comes as close to anyone ever has in getting to the crux of the tax haven conundrum, which is to attempt to answer the question: why are they tolerated?”Evening Standard

“Combines meticulous research with amusing anecdotes, resulting in a very readable account of the murky world of offshore and a strong moral message that the system needs to be changed.”Financial Times

“A blistering account of the role that tax havens play in international finance. Brilliant.”London Review of Books

“..the most important book…since the Spirit Level.”OpenDemocracy

“Shaxson is an imbecile…”Tony Travers Cayman Islands Financial Services Authority