Tax justice in the EU and beyond
The publication of the Paradise Papers continues an issue that has been at the forefront of public awareness since the Offshore Leaks in 2013: the beneficiaries of private, commercial and criminal incomes and assets misuse a range of options, some of them legal, to release themselves from their obligations to public welfare. They may not always be breaking the letter of the law, but they are certainly going against the spirit of much of the legislation, as well as the ethical principle that “property entails responsibility”. According to conservative estimates, the world’s states are deprived of some 400 billion US dollars of tax revenue per annum, which could be used to build schools, improve health care, combat climate change and invest in infrastructure and jobs.
Looking to their own
On 5 December 2017, EU finance ministers drew up a blacklist of 17 tax havens. These do not cover the really significant tax havens, but instead include Bahrain, Barbados, Grenada, Guam, Macau, the Marshall Islands and Mongolia. All these countries should be moved by the list to ensure greater tax transparency and better data exchanges. However, EU States should be aware that they also have countries with tax havens in their midst: Ireland, Luxembourg, the Netherlands, Malta and Cyprus. It would therefore represent a substantial step forward if the EU began by looking to its own.
More far-reaching transparency obligations
The current system has grown out of political decisions, and can therefore be dismantled – if the will is there. The significant thing about all the data leaks is that the incredible scale of these abuses has found its way into the public domain, thus increasing the pressure to finally do something about it. The Panama Papers moved the Organisation for Economic Co-operation and Development (OECD) to finally act in the case of group taxation and the automatic exchange of account data. Similarly, the Paradise Papers may contribute to further closing up remaining loopholes.
In addition to ending tax competition, transparency is also needed by the authorities concerning the holdings of the owners of assets. As part of its money laundering measures, the EU intends to impose more far-reaching transparency obligations on genuine owners, which has not been received with unqualified enthusiasm by EU Member States, in particular Germany. In order to combat tax evasion, the state needs the capacity to shed a reasonable amount of light on the “models” developed by banks, tax consultants and others. Accordingly, the fiscal authorities, the police and public prosecutors must be better equipped. Even if no real progress is possible globally, there is much that could be done on a European level. One possibility would be, as in the USA, to disassociate tax liability from the place of residence, linking it rather to citizenship.
As long as governments drag their feet, data leaks such as the Paradise Papers, together with action by members of the civil society and the media, will be all the more important, because they are able to act across borders, whereas states are up against legal boundaries and limited resources. It is also important to ensure that whistleblowers, who expose behaviour that is contrary to the common good, should be protected rather than punished.
Tax justice in the Catholic social doctrine
The subject of tax justice is still new to the Catholic social doctrine. The Compendium of the Social Doctrine of the Church views tax revenues and public expenditure as an “instrument of development and solidarity”, aimed at promoting social welfare (para. 355). It a case of social balance achieved by giving priority to options for the poor. In his encyclical Populorum Progressio (1967), Pope Paul VI did in fact raise the issue of tax evasion: “Consequently, it is not permissible for citizens who have garnered sizeable income from the resources and activities of their own nation to deposit a large portion of their income in foreign countries for the sake of their own private gain alone, taking no account of their country's interests; in doing this, they clearly wrong their country.” (24)
Issues of tax justice must also be considered beyond the combating of abuse. An awareness of the problems, and of the national and international structural injustices, is essential here. Politicians will only act if large swathes of the public constantly and emphatically demand change. The churches must accept their responsibility here, including at EU level.
Jörg Alt SJ
Employee of the Jesuit mission in Nuremberg, and of the research project “Tax justice and poverty”
Translated from the original text in German
The views expressed in europeinfos are those of the authors and do not necessarily represent the position of COMECE and the Jesuit European Social Centre.