Breaking the cycle: How Europe can stop industrial tax dodging

HSBC’s Swiss branch helped over 130,000 wealthy people dodge their taxes. This is yet another shocking scandal making tax dodging appear more like a film franchise than a damaging global practice. Here's how the European Union could help ensure justice.

What would once have been shocking revelations exposing a global industry helping corporations and wealthy individuals dodge tax, now feels merely like history repeating itself. Monday's newspapers once again stripped back the murky world of international tax avoidance, detailing how the global banking giant HSBC’s Swiss branch helped over 130,000 wealthy people pay the smallest amount of tax possible on their savings between 2006 and 2007. Tax badly needed to plug government spending gaps in, for example, health and education services across Europe instead flowed into the pockets of the already wealthy.

As appalling as this may be, it isn’t surprising. The ‘SwissLeaks’ exposé is just the latest sequel in a horror show of news stories over the past two years, with the ‘OffshoreLeaks’,  ‘LuxLeaks’ and ‘LuxLeaks 2’ scandals making tax dodging appear more like a film franchise than a damaging global practice.

Despite tax scandals becoming almost as common as new super hero movies, the European Union remains sluggish in combatting the situation, regardless of some initially encouraging signs. Such a damning set of revelations must inspire the change desperately needed within the EU to ensure that multinationals and the super-rich pay their fair share. The EU may talk the talk, but it now needs to walk the walk – and walk it briskly.

Here are three actions which the European Union could take to help ensure tax justice.

1. Enact transparency legislation

One area where the European Union needs to do better is around transparency. Believe it or not, legislation making companies publicly report on where they have real economic activity - subsidiaries, employees and assets - and where they declare profits and pay taxes is not in place. Checking discrepancies within this information would help to raise questions on why so many multinationals declare profits in countries like Luxembourg, while employing so few people there.

On a more positive note, new legislation coming into force in the next two years will require EU countries to establish registers containing core information on who owns companies and trusts - such as names and date of birth. All countries should ensure these registers are made public, in order to remove the veil that tax dodgers and money launderers have so far been able to hide behind.

2. Monitor tax rulings

The European Union has also decided to ensure tax rulings – agreements allowing certain multinationals to negotiate sweet tax deals with certain European countries – are automatically exchanged between tax administrations in Europe. While a baby step forward, this is nowhere near close to what is needed, as it won’t stop the practice of tax rulings being made for the sole purpose of avoiding taxes.

Ensuring these tax rulings are publicly available may be an effective deterrent, but should go hand in hand with policy on how to avoid tax rulings being misused for tax dodging purposes.

Tax avoidance cartoon3. Clamp down on tax havens

These measures will give the EU the ability to see through the haze of international finance and catch tax dodgers hiding their secret millions, but it is not enough. To complement the vision to spot tax dodging Europe also needs the teeth to punish companies and people dodging tax, and the tax havens that help them get away with it.

Sanctions must be applied to known tax havens to stop them syphoning money away from countries genuinely owed tax, and a common European blacklist of tax havens should be created to identify the main offenders.

Breaking the scandalous cycle

History does not have to repeat itself, and Europe possesses the tools it needs to break the cycle of industrial tax dodging by both multinational companies and individuals alike. Europe can demonstrate the international leadership required to help end these practices at a global level, but the main question is - does it have the political will?

The SwissLeaks scandal may simply be the latest in a long line of tax evasion scandals, but if Europe can use greater measures to effectively uncover tax dodging and tougher sanctions to fight it, it may also be one of the last.

This post was written by Catherine Olier, Oxfam International’s Policy Advisor for EU taxation, @CatherineOlier. Posted on 11 February 2015.

Photo credit: (used under CC BY-ND 2.0)

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