Saturday 15. August 2020
#193 - May 2016

Panama Papers shed light on global tax avoidance

The unprecedented leak of the Panama Papers in April created a shockwave. They cast the spotlight on more than 200,000 offshore companies and their secret owners. Political action is now required.

In the light of the Panama Papers revelations, on 12 April last Members of the European Parliament urged the EU Commission and Member States to step up their efforts to fight tax evasion and money laundering. Several political groups of the European Parliament called for a pan-European blacklist to be drawn up of tax- and secrecy havens and urged EU Member States to embrace transparency proposals instead of watering them down.

 

Fairer taxation in Europe

For its annual Concerted Action 2016, the Conference of European Justice and Peace Commissions (Justice and Peace Europe) has decided to address the topic of growing economic inequality and to place a special focus on fairer taxation in Europe. The excessive, unsustainable life styles of a tiny minority contrast with the needs of the vastly more numerous people who live lives of deprivation. Justice and Peace Europe believe this increase in poverty taken together with the excessive concentration of wealth are ethically unjust and constitute a threat to social cohesion as well as to the democratic order. The need to integrate large numbers of migrants constitutes a further challenge.

 

A key instrument is fairer taxation of multinational companies, the financial sector and excessively rich individuals. For Justice and Peace Europe, fairer taxation is an ethical requirement for our times. In his apostolic exhortation Evangelii Gaudium, Pope Francis urges us to strive towards “the return of economics and finance to an ethical approach which favors human beings” (EG 58). This calls for a renewed sense of responsibility by the financial and economical elites as well as for effective rules and regulations.

 

The course of events can be changed by political and economic decisions. Political strategies can reduce social inequality and increase the degree of social security and with it social cohesion in and among European societies.

 

Important pillars of such a political strategy against social inequality should be: effective regulation and a well-ordered competition policy; more opportunities through better education and training, and a fairer tax system. Effective regulation of the financial sector and strict enforcement of antitrust laws are necessary at the national and EU levels. In effect, EU competition policy has a central role in reducing inequality. An effective policy of capping the bonuses and incomes of high wage earners needs to be pursued.

 

International organisations like the OECD play an important role in coordinating efforts for more transparency in tax matters. The OECD sponsored Global Forum of 130 countries on transparency and exchange of information is a positive step in the fight against tax evasion and tax havens. Ninety-six members of the Forum have committed to automatically exchange information on non-resident financial accounts by 2018 at the latest.

 

Furthermore, a Base Erosion and Profit Shifting (BEPS) package composed of fifteen distinct actions was produced by the OECD and adopted by the OECD and the G20 in autumn 2015. It tackles the problem of an inadequate international taxation framework allowing multinational companies to artificially shift corporate profits and, thus, aggressively diminish their tax bills. This does not in itself contravene the powers of national governments to define tax bases and set tax rates.

 

The EU should be the frontrunner

However, following revelations at the end of 2014 on so-called tax rulings, by which states grant multinational firms privileged tax conditions, cooperation at the European level has intensified. European institutions, whose competence in taxation remains limited, increased their efforts to ensure fair and effective taxation of corporate profits where they are generated. The May 2015 agreement between the EU and Switzerland allowing for an automatic exchange of information on the financial accounts of each other’s residents is also to be welcomed.

 

In order to support the current political momentum for a fairer taxation system, several European Justice and Peace Commissions will monitor their national governments in respect of their involvement in the BEPS project. They will also advocate the due transposition of an EU directive on the automatic exchange of tax rulings into national law by 1 January 2017.

 

Members of the European Parliament’s TAXE 2 special committee have already achieved considerable progress in the areas of state aid and taxation and the compliance of Member States with tax legislation. Now it is to be hoped that the proposals of the European Commission for a coordinated EU wide response to corporate tax avoidance presented at the beginning of the year 2016 can be put into practice.

 

The European Union can and should play the role of a frontrunner because growing income inequality and the decrease of social justice in Europe are not inevitable.

 

Marek Misak

Justice and Peace Europe

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