Since autumn last year, the Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) has been working on identifying tax avoidance tactics and tax loopholes, as uncovered by the Panama Papers. It is the objective of the Committee to reveal relevant infringements and abuses in Union law. The months of work have discovered important information for the EU-wide fight towards transparency and tax justice.
In numerous Committee meetings, a wide range of stakeholders such as journalists, EU-Commissioners, bank officials, civil servants of various Member States, activists, whistleblowers and scientists has been included in discussions about the issues of the current system and possible counteractions at EU level to make tax avoidance and evasion practices impossible. In addition, fact-finding missions were undertaken to several Member States, as well as to the United States of America. Some of the Committee's key findings have already been published in five studies. In most cases, money laundering happens by the means of setting up a company in a tax haven. This company then needs a respective offshore bank account. Financial intermediaries play an important role, both with regard to setting up and maintaining these structures. Not only banks and tax consultants are at stake, but also lawyers, financial advisors, auditors, as well as insurance or trust companies, may well be involved in these activities. Within the EU, these professional groups are subject to different sector-specific regulations. However, the work of the PANA-Committee shows: what is needed are uniform regulations, which are aimed at the activity and not at the professional designation in order to successfully block their assistance with regard to money laundering activities and tax avoidance structures and to be able to prosecute their involvement accordingly.
As a Study for the Committee reveals, tax avoidance and evasion leads to an huge loss of tax revenues for the European Member States, revenues which could be used for social benefits, education or employment policy. Even if, according to some Parliamentarians in the Committee, these calculations had to be considered with care, one may well assume tax gaps of more than 100 billion Euros at EU-level. Tax avoidance and evasion are a global problem, which require global solutions. Lost tax revenue due to complex tax avoidance structures is a particularly serious problem in the Global South. If the OECD-BEPS model is used as a sole basis for EU-policies to combat tax avoidance, the interests of the Global South will not be taken into account as they were systematically excluded from the underlying negotiations. The PANA-Committee is in favour of creating a 'Black List’ of tax havens, which is also demanded by the Commission Proposal on country-by-country reporting[i]. This list is to be based on the OECD’s definition from 1998. According to this characterisation, a tax haven uses low to non-existent nominal tax rates, laws, which make any effective exchange of information on tax payments impossible, a lack of transparency and a lack of requirements, which demand investments and transactions having substantial value. What about EU States or sovereign territories belonging to the EU, which could, according to this definition, be called tax havens? Madeira (PT), The British Virgin Islands and Gibraltar (GB) might currently be considered as such. Hence, the upcoming BREXIT might make the fight against tax evasion even more difficult.
What is clear by now, however, is that more transparency is required to make rich individuals and companies pay their fair share of taxes in the country in which their wealth has been generated. The work of the PANA Committee of Inquiry is not yet finished. Surely, it will deliver more exiting and important findings, which have to be taken into account with regard to all other European efforts aiming at more tax justice, such as for instance country-by-country reporting and the proposal for a Common Consolidated Corporate Tax Base.
[i] In contrast, the respective draft proposal by Evelyn Regner and Hugues Bayet on country-by-country reporting suggests that European companies have to disclose their profits and activities in all countries worldwide, in which they are active.
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AK EUROPA Position Paper on Country-by-Country-Reporting (CbCR)
AK EUROPA Position Paper on Common Consolidated Corporate Tax Base (CCCTB)
PANA: The official homepage of the Committee of Inquiry
PANA Study: Fighting tax crimes – cooperation between Financial Intelligence Units
PANA Study: Impact of the schemes revealed by the Panama Papers on developing countries
PANA Study: The Impact of Schemes revealed by the Panama Papers on the Economy and Finances of a Sample of Member States
PANA Study: Role of advisors and intermediaries in the schemes revealed in the Panama Papers
PANA Study: Rules on independence and responsibility regarding auditing, tax advice, accountancy, account certification services and legal services
PANA Study: Tax evasion, money laundering and tax transparency in the EU Overseas Countries and Territories