{"id":50369,"date":"2020-06-01T07:47:13","date_gmt":"2020-06-01T06:47:13","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=50369"},"modified":"2020-06-01T07:47:13","modified_gmt":"2020-06-01T06:47:13","slug":"hypocrisy-in-european-tax-policy-and-the-morality-play-of-economic-recovery","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2020\/06\/01\/hypocrisy-in-european-tax-policy-and-the-morality-play-of-economic-recovery\/","title":{"rendered":"Hypocrisy in European Tax Policy and the Morality Play of Economic Recovery"},"content":{"rendered":"

The article that follows was written by my friend and colleague, Prof Leonard Seabrooke of Copenhagen Business School. It was originally published in Danish <\/span>in <\/span>Politiken<\/span> as \u2018<\/span>Man <\/span>skal<\/span> ikke<\/span> bel\u00c3\u00a6re<\/span> andre<\/span>om <\/span>\u00c3\u00b8konomiske<\/span> dyder<\/span>, <\/span>n\u00c3\u00a5r<\/span> man <\/span>selv<\/span> bor<\/span> i<\/span> et <\/span>skattely<\/span><\/a>\u2019 [<\/span>\u2018<\/span>One shouldn\u2019t <\/span>teach<\/span> others about economic <\/span>virtues, when you are a tax haven\u2019<\/span>] on\u00a0<\/span>May 31 2020. I felt it well worth sharing in English because it highlights the massive obstacles to progress on tax justice issues that still exist, not least in the EU.<\/span><\/em><\/p>\n

Political action against t<\/span>ax havens is setting the stage for a morality play<\/span> that will expose some of <\/span>the <\/span>hypocrisies <\/span>in<\/span>European tax policy. <\/span>Different policy positions taken by the OECD and the EU, as well as individual countries, are <\/span>revealing<\/span>how <\/span>embedded<\/span> tax havens <\/span>are <\/span>in<\/span> our <\/span>European econom<\/span>ies<\/span>. The finger pointing on who can claim the moral high ground is going to intensify in the coming months.<\/span><\/p>\n

The <\/span>extreme costs of the <\/span>corona<\/span>virus <\/span>crisis<\/span> are going to strain the fiscal purse in most countries<\/span>, intensifying the<\/span> rally against<\/span>corporate <\/span>tax avoidance. We have already seen national responses through conditions on <\/span>economic support packages<\/span> that prevent companies that directly own corporate entities in non-EU tax havens from receiving state support. <\/span>Belgium, France, Denmark, and Poland were early to act in linking state support to companies in crisis and the issue of tax havens. <\/span>In Denmark this<\/span> is symbolic politics, since <\/span>the requirement is \u2018direct\u2019 ownership from a tax haven on the EU blacklist. Of the countries on the list only the Cayman<\/span> Islands is<\/span> important<\/span>. Recent reports suggest that <\/span>very few<\/span>Danish companies will be affected. In <\/span>Scotland<\/span><\/a> a new amendment includ<\/span>es<\/span> not only direct ownership in a<\/span> tax haven on the <\/span>EU <\/span>blacklist, but also being involved in an arrangement that profits from tax havens. That\u2019s a much more ambitious ruling<\/span>. Living up to it requires some serious<\/span> investigative capacity<\/span> to understand how multinational corporate structures are composed, or <\/span>what our research group<\/span> call<\/span>s<\/span> global wealth chains<\/span>. <\/span>The Danish companies recently <\/span>targeted<\/span><\/a> for attention for being invested in tax havens complained that they were being unfairly smeared because their corporate registrations are in countries that are not on the EU blacklist. The obvious problem here is that the <\/span>EU blacklist<\/span><\/a>doesn\u2019t include EU member states. <\/span><\/p>\n

Denmark\u2019s symbolic politics on <\/span>tax havens is <\/span>strategically<\/span>ambiguous. <\/span>There is a much bigger political game in <\/span>this moralspil<\/span>. The recent <\/span>French-German <\/span>initiative<\/span><\/a> on a \u00e2\u201a\u00ac500 billion <\/span>\u2018<\/span>Recovery Fund<\/span>\u2019<\/span> is an especially important plot twis<\/span>t. The agreement<\/span>\u00a0explicitly states that fair taxation in the EU is a priority, and that <\/span>\u201ceffective <\/span>minimum taxation<\/span>\u201d<\/span> and digital taxation is needed \u201c<\/span>ideally based on a successful conclusion of the OECD work, and establishing a Common Corporate Tax Base<\/span>\u201d<\/span>.<\/span> The words in <\/span>quotation marks <\/span>are import<\/span>ant. They <\/span>establish<\/span> explicit<\/span>French-German support <\/span>behind the OECD\u2019s more assertive policies<\/span> on tracing corporate tax avoidance<\/span> through its B<\/span>ase <\/span>E<\/span>rosion and <\/span>P<\/span>rofit <\/span>S<\/span>hifting program<\/span>me<\/span>, which includes 137 countries<\/span>. <\/span>The French-German action<\/span> has <\/span>obviously <\/span>spurred on the <\/span>\u2018<\/span>Next Generation EU<\/span><\/a>\u2019<\/span><\/a> proposal<\/span> announced last week, which includ<\/span>es ideas for digital taxation, a <\/span>carbon border tax, <\/span>and a tax on large companies<\/span> with more than <\/span>\u00e2\u201a\u00ac750<\/span><\/a> million<\/span> in revenues<\/span>. While the details are not yet present, there is certainly movement for more coordination on European tax policy as part of the recovery effort.<\/span><\/p>\n

The <\/span>OECD<\/span><\/a> estimates that corporate tax avoidance has cost between 4-10% <\/span>of global corporate income tax revenue<\/span>, between US$<\/span>100-240<\/span> billion a year. <\/span>Pascal Saint-Amans<\/span>, <\/span>the OECD \u2018<\/span>tax czar\u2019<\/span>, <\/span>has made a strong push on having a new <\/span>unified <\/span>framework <\/span>for assessing a \u2018nexus\u2019, where <\/span>companies are active in a country for tax purposes, as well as an agreement on minimal corporate tax levels.<\/span> The tax havens on the EU\u2019s blacklist are right to be worried. <\/span><\/p>\n

Some northern European countries may also be worried<\/span> by this development<\/span>. <\/span>OECD data<\/span><\/a> shows that in 2018 <\/span>corporate taxes as a percentage of all taxes <\/span>w<\/span>as 8.85%. In France it <\/span>wa<\/span>s 4.6% and Germany 5.6% (Denmark is 6.5%), while in the Netherlands it <\/span>was<\/span> 9%, in Ireland 14.4% and in Luxembourg 14.8%. The French and German governments<\/span> may be looking at their neighbors and wonder<\/span> how much they <\/span>are subsidizing them. Southern European countries <\/span>may look at claims from the Netherlands <\/span>about \u2018moral hazards\u2019 and the need<\/span> for <\/span>fiscal prudence and <\/span>cry \u2018hypocrisy!\u2019<\/span>.<\/span>French and German support for OECD work points to a coming conflict not between the north and the south within the EU, but between northern countries that enable corporate tax avoidance and those who lose from it. <\/span><\/p>\n

The Tax Justice Network\u2019s <\/span>Corporate Tax Haven Index<\/span><\/a> provides some insight<\/span> here<\/span>. The index ranks how aggressively tax havens allow multinational corporations to <\/span>avoid paying taxes. In the 2019 index first place goes to the British Virgin Islands, with Bermuda second and the Cayman Islands third. <\/span>This fits with our image of tax havens as places with palm trees and sandy beaches. <\/span>However, fourth place goes to the Netherlands and sixth place to Luxembourg. New research from political economy scholar<\/span>s, especially <\/span>Javier <\/span>Garc\u00c3\u00ada-Bernardo<\/span><\/a>, <\/span>separates out <\/span>tax havens into <\/span>\u2018sink<\/span>s<\/span>\u2019 and \u2018<\/span>conduit<\/span>s<\/span>\u2019<\/span>. <\/span>Sinks<\/span> attract and keep foreign <\/span>capital<\/span>, while <\/span>conduits<\/span> are used as midway points in corporate structures. The Netherlands is <\/span>the most important <\/span>conduit<\/span> for European companies,<\/span> especially as a passage point to<\/span> the key <\/span>sink<\/span>, <\/span>Luxembourg. <\/span><\/p>\n

We can expect a lot of political activity on tax havens in the coming months as the moralspil evolves. <\/span>Reform of the tax system through the EU is unlikely given that changes to tax policies require unanimity<\/span> from member states. <\/span>Last year the European Commission signaled its desire to remove unanimity in favor of more <\/span>\u2018efficient and democratic\u2019<\/span><\/a> decision-making on tax issues, especially for the same initiatives being pushed by the OECD. <\/span>Denmark, Sweden, the Netherlands, Luxembourg and Ireland oppose a change to unanimity on tax rules. For some this opposition is to protect sovereignty. For others it is also to protect their corporate tax base. Given the impasse on unanimity we will see more <\/span>activity on accounting<\/span> issues<\/span>, <\/span>since<\/span> it is the reporting standards that provide information on what is and could be taxed. <\/span>A<\/span>ccounting directives don\u2019t require <\/span>unanimity in the EU, so there is space for political action there.<\/span><\/p>\n

Denmark aligns itself with the Netherlands, Austria and Sweden in <\/span>\u2018The Frugal Four\u2019<\/span><\/a>, opposing joint loans. <\/span>This affirms the old narrative of <\/span>northern European countries claim<\/span>ing<\/span> the moral high ground of fiscal prudence, and point<\/span>ing<\/span> fingers at southern European countries for poor economic management. But now we have a<\/span>n important <\/span>development<\/span> in this <\/span>morality play<\/span>. <\/span>France and Germany\u2019s support for the OECD\u2019s work is going to highlight hypocrisies on the role of tax havens in Europe and force all member states, including Denmark, to<\/span> consider<\/span> who their friends are when claiming the moral high ground.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

The article that follows was written by my friend and colleague, Prof Leonard Seabrooke of Copenhagen Business School. It was originally published in Danish in
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,78,10,32,97,11],"tags":[],"class_list":["post-50369","post","type-post","status-publish","format-standard","hentry","category-economics","category-oecd","category-tax-avoidance","category-tax-havens","category-tax-justice","category-tax-justice-network"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/50369","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=50369"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/50369\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=50369"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=50369"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=50369"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}