Sven Giegold
Member of the European Parliament – Greens/EFA Group

Speaker of the German Green Delegation

Landmark decision on the EU list of tax havens: so that it can finally live up to its potential!

Dear friends and all those who are interested,

On 21 January, the European Parliament took a landmark decision to improve the EU list of tax havens. With a broad majority of 587 MEPs (with 50 votes against and 46 abstentions), we are making strong demands to the Commission and the Council to finally develop the EU list of tax havens into a powerful instrument against tax avoidance and tax evasion. I was negotiating this Parlamentary resolution on behalf of the Greens/EFA group. Our demands can be summed up in one word: consistency. The list was introduced in 2017 with the clear aim of naming tax havens worldwide and imposing sanctions on them to stop the loss of tax revenues. But the list has had far too little effect so far. Therefore, a broad majority in the European Parliament is calling for stricter criteria which have to be applied consistently – to tax havens inside and outside the EU.

This decisive signal from the European Parliament is a wake-up call, because the extent of the annual tax losses through tax havens is immense: according to the latest report by the Tax Justice Network, direct tax revenues lost world wide amount to 360 billion euros annually because it is still possible to shift corporate profits and private assets to tax havens. If one includes the indirect losses due to tax avoidance by multinational companies, the annual tax losses worldwide even amount to an estimated 978 billion euros. Against this background, it is unacceptable that according to the Tax Justice Network the countries on the current EU list of tax havens account for just 2% of corporate tax avoidance! That is why we demand important improvements in the parliamentary resolution to finally sanction tax havens effectively worldwide. 

The EU list of tax havens was first published in December 2017 and has been regularly updated since then. The list is the result of a review and dialogue process of the Code of Conduct Group on Business Taxation in the European Council with third countries. In this process, the EU member states assess third countries according to criteria on tax transparency, fair taxation, implementation of OECD BEPS measures and examination of the economic substance of tax arrangements for zero-tax countries. In addition to the actual list, there is also a watch list for countries that have committed to changes. The decisions of the Code of Conduct Group are taken behind closed doors and are not subject to parliamentary scrutiny so far.

Together with the other pro-European parties, we have drafted a strong, progressive resolution so the EU list of tax havens can finally live up to its potential. We called for improvements in three key areas: 

  1. We need stricter criteria to ensure that all tax havens are covered by the list. If a country levies no or only very little corporate taxes, then it must be included in the list immediately. Furthermore, the criterion of fair taxation must also cover broad tax exemptions and transfer pricing mismatches – instead of being limited to evidently preferential tax measures. Furthermore, we need a tightening of the substance criterion. This means that states must stipulate in law that tax resident companies must also prove that they have economic substance in that country. Such a substance criterion already exists, but it is decidedly too weak. Why a tightening of the criteria is necessary can be clearly demonstrated by the example of the Cayman Islands: The Cayman Islands were removed from the EU list of tax havens on 6 October 2020 after introducing minimal substance criteria for companies and weak enforcement measures. They were removed from the list despite the fact that the Cayman Islands are responsible for 16.5 per cent of global tax leakage – making it the jurisdiction that causes the most damage to other countries! To date, the Cayman Islands have a corporate tax rate of zero percent. Therefore, the level of corporate taxation must become a core criterion: if a country levies no or only a very low corporate tax, then it must automatically be put on the list. Together with the Social Democrats, we were also able to successfully introduce an amendment that lends weight to our demand for an appropriate effective minimum corporate tax rate closed to the average statutory corporate tax rate in the EU (21.7% in 2019).
  2. However, stricter criteria are only of use if they are consistently implemented. The decision on whether to categorise a country as a tax haven must be arrived at in a transparent, coherent and impartial manner. This is important in order to decisively reduce the possibilities for political influence. The USA, for example, has never been included in the list even though it too is a de facto tax haven due to severely restricted automatic exchange of information. This must change. With this resolution, we MEPs call on the Council to give a mandate to the Commission to carry out the review of third countries in the future and to draw up a proposal for the EU list of tax havens accordingly. This list must be made public before the Council decides on it. Furthermore, the European Parliament calls for an observer role in the negotiations of the Code of Conduct Group. In the medium term, the whole process should be formalised at EU level, preferably through a legally binding instrument. With these measures, we want to ensure that the decision which countries are sanctioned as tax havens is made on the basis of sound, pre-defined criteria. The tax losses that member states incur as a result of tax havens subsequently have to be borne by the citizens. That is why we need maximum transparency and an independent, consistent examination of third countries – with the involvement of the European Parliament!
  3. We must stop with the double standards. We cannot demand consistent scrutiny of third countries without applying the same standard within the EU. Not only does this undermine Europe’s credibility, but we also ignore a crucial part of the problem: European member states are responsible for 36 percent of all tax losses worldwide and thus harm others! This means that we must not only focus on tax avoidance in third countries but also on tax havens within the EU. In the text of the resolution, we therefore demand that EU member states be measured against the same criteria as third countries. It is not acceptable that Malta can act as a tax haven without any reprimands, while Panama has been put on the EU list of tax havens for the same practices!

As a result of Brexit, the UK has become a third country with its “spider web of tax havens” in its overseas territories and crown dependencies. This British spider web is responsible for 37.4% of all tax losses worldwide. In our resolution, we therefore call for a thorough review of Britain and its territories against the strengthened criteria outlined above. This is particularly important given that the draft EU-UK Trade and Cooperation Agreement contains few commitments against tax dumping. As a member of the EU, the UK’s tax rules have been a costly burden on other member states. We cannot accept this burden being imposed on us by a third country, especially in the context of the burden on public budgets caused by the pandemic.

The report of the European Parliament that has just been adopted sends another important signal. We are aware that tax havens hit poorer countries disproportionately hard: Even though rich countries have much more tax losses overall, these losses are much smaller in relation to the public budget than in poorer countries. In Germany, for example, the lost tax revenues correspond to 11.26 per cent of health care expenditure, whereas on the African continent they correspond to an average of 52.5 per cent of the countries’ expenditure on health care! Rich countries, including in Europe, are responsible for these high losses. In doing so, we are undermining our own development policy goals. Therefore, we call on the Council’s Code of Conduct Group to involve and consult developing countries more. To this end, we propose the establishment of a working group with third countries, including representatives of civil society, to promote constructive dialogue.

This decision of the European Parliament thus contains many important points to improve the EU list of tax havens so that it can finally live up to its potential. 587 of the 683 MEPs who were (virtually) present at the plenary session voted in favour of the resolution. The fact that we were able to pass such a progressive report with such a large majority is a strong signal for greater tax justice.

With confident European greetings,

Sven Giegold

Here is the link to the resolution: https://sven-giegold.de/wp-content/uploads/2021/01/Beschlusstext-EN_EU-Liste-der-Steueroasen_2021-01-21.pdf

P.S. Petition: Digital Tax Now! – Shops are closing, Amazon & Co are making huge profits without paying their fair share of tax: a digital tax must come now! Together we have the chance to finally overcome the blockade on the digital tax: Please sign our petition and share it with your contacts! https://www.change.org/digitaltax-now