Tax havens cost European Community 170 billion euros a year
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Topics: TAX EUROPEAN
“As the sense of small and large entities facing unequal treatment fuels populism across Europe, we must definitely tackle this problemâ€, said French Minister of Finance Bruno Le Maire in the Polish House in Davos.
During the 50th Global Economic Forum in Davos, findings of a report on EU tax havens, drawn up jointly by the Polish Economic Institute (PIE) and Bank Gospodarstwa Krajowego (BGK), provided grounds for a discussion in the Polish House.
The discussion was attended by Polish Prime Minister Mateusz Morawiecki, French Minister of Finance Bruno Le Maire, and OECD Secretary-General Jose Angel Gurria, with Piotr Arak, Director of the Polish Economic Institute, acting as the moderator.
The countries worst-hit by tax avoidance include Germany (losing 29% of its potential tax revenue, corresponding to EUR 18 billion) and France (24%, i.e. EUR 11 billion).
“We must counteract this phenomenon by establishing a fair tax system that will pave grounds for true solidarity in the international communityˮ, said Beata Daszyńska-Muzyczka, President of the Management Board of BGK, in her opening speech which launched the expert debate.
The losses arising from cross-border tax avoidance within the last seven years clearly reflect the scale of EU tax havens.
Their aggregated sum exceed by one-fourth the entire EU budget for 2014-2020 set at EUR 960 billion.
“It is hardly possible for an average EU citizen to avoid paying taxes, which makes it difficult for people to understand how large corporations can do so without breaking the law.
As the sense of small and large entities facing unequal treatment fuels populism across Europe, we must definitely tackle this issue,†said French Minister of Finance Bruno Le Maire.
According to Le Maire, whether this problem is solved once and for all depends not only on measures taken by individual EU Member States but also on their concerted effort.
The French Government has struck a preliminary deal with the USA regarding a digital tax impacting, inter alia, the U.S.
leading tech companies (Google, Amazon, Facebook, Apple).
France has made a concession to avoid the outbreak of tariff war, postponing the tax payment from April to December 2020.
“President Emmanuel Macron has sent a clear message that he is expecting a global remedy.
For the last 3 years France has been incessantly drawing attention to the problem and its potential solution, i.e. digital tax.
We cannot allow large corporations to pay lower taxes only because they have not marked their physical presence in a given countryâ€, stressed the French Minister of Finance.
EU companies transfer their profits from the countries of their operations to other EU Member States due to less stringent tax systems.
As revealed by the PIE and BGK report, the countries which benefit most from this artificial profit shifting process, and are regarded by the European Commission as EU tax havens, include Belgium, Cyprus, the Netherlands, Ireland, Luxembourg and Malta.
In 2016, the Polish State Treasury lost 11% of the total CIT revenue (corresponding to approx. PLN 3-4 billion) due to profit transfers abroad.
Legal regulations which are less stringent encourage artificial profit shifting.
In addition, such countries act as intermediaries in the process of transferring funds further to traditional tax havens such as the Cayman Islands.
“We should make a distinction between two issues: tax evasion by the wealthiest citizens and aggressive tax optimisation applied by multinational corporations.
The situation is more complex in the latter case, because it is currently permitted by law.
Companies which shift their profits to countries with less stringent tax systems are acting unethically but within the framework of applicable lawsâ€, said Angel Gurria, OECD Secretary-General.
To effectively bring to justice the wealthiest citizens evading taxes, OECD is applying the system of automatic exchange of information for tax purposes covering a hundred countries.
This facilitated the processing of reports on 50 million bank accounts where a total of EUR 5 trillion was deposited (which is roughly a third of the value of American economy).
This way EUR 102 billion due tax has been recovered.
By the end of 2020, OECD is planning to announce its recommendations for modifying international tax law.
Only in the EU, the aforementioned EUR 170 billion of loss per year includes EUR 60 billion on account of profits shifted to tax havens by corporations, EUR 46 billion on account of assets shifted abroad by wealthy citizens, and EUR 64 billion loss on frauds and other unlawful activities related to VAT payments in intra-EU transactions.
“Before 2015, Poland was listed among the EU countries with the largest VAT gap (ranging from 25 to 27%).
This gap has been reduced to 8-9%.
The changes in the tax system have been the main driving force of a strong and firm growth of Polish economy over the recent years.
It has been possible thanks to reducing taxes paid by small and medium enterprises, while at the same time eliminating defective legal provisions which had been making fraud possible.
We have done out share of work.
Now it is time for similar solutions across the European Community.
It is time for the European Commission to take the bull by the hornsâ€, said Polish PM Mateusz Morawiecki.
The Polish Prime Minister also stressed that the declared VAT gap value in all Member States (EUR 150 billion), or loss on tax evasion by corporation or wealthy citizens (EUR 160 billion), has been nearly equal to the annual EU budget.
The report by PIE and BGK lists suggestions for solving the tax evasion issue.
A “black list†of Member States considered to be internal tax havens and a system of sanctions imposed by the European Commission are only a few of the ideas.
Setting a minimum CIT rate for the entire EU might also help.
The Polish Economic Institute (PIE) is a public think-tank dealing with economic issues.
The research focus of PIE covers predominantly international trade, macroeconomics, energy and digital economy, as well as strategic analyses related to the key areas of Poland’s social and public life.
PIE provides analyses and expert opinions for the purpose of delivering the Strategy for Responsible Development, and disseminating Polish research in the field of economics and social studies across the country and abroad.
Bank Gospodarstwa Krajowego (BGK) is a state development bank whose mission is to support the social and economic development of Poland and the public sector in the fulfilment of its tasks.
The Bank is a financial partner actively supporting entrepreneurship and making effective use of development programmes.
It is the initiator of, and the participant in, cooperation between business, the public sector, and financial institutions. ■