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Enough stalling on tax justice!

Last month’s ‘Panama Papers’ leaks are just the latest evidence of the legal or illegal, but always immoral, tax practices of multinationals, banks and the rich

By: EBR - Posted: Tuesday, June 21, 2016

Failure to tackle tax dodging in earnest will be a devastating indictment of a political leadership unwilling to make changes that are within its reach.
Failure to tackle tax dodging in earnest will be a devastating indictment of a political leadership unwilling to make changes that are within its reach.

by Jan Willem Goudriaan and Nadja Salson*

Tax campaigners and trade unions across the globe, including the European Public Service Union (EPSU), have for years been pushing for reforms that would bring offenders and their tax dealings out into the open, and allow governments and the public to hold them to account. This in turn would release significant funds for investment into public services, paving the way out of austerity toward a more equal and just society.

To accomplish this task is well within the capabilities of governments, and has overwhelming support from the general public. The real questions, though, are whether the EU and its members can conjure up the political will to pursue them, as well as whether the British government is open to being part of the solution, or determined to remain central to the problem.

A full investigation into Mossack Fonseca and its clients is just one – albeit crucial – step in the global search for the billions of euros kept out of sight by multinational corporations and the wealthy. The public deserve to know all the ins and outs of the law firm’s near 40-year history and what, if any, money is owed to national tax authorities.

But the hard work cannot stop there. The Panama Papers – and ‘Lux Leaks’ in November 2014 – reveal merely the tip of the iceberg when it comes to global tax avoidance. The International Consortium of Investigative journalists, the group behind the unprecedented leak, has announced that on 9th May they will publish a database of more than 200,000 companies, trusts, foundations and funds in 21 tax havens. This will not only expose more dodgy dealings by the super-rich, but should refocus the debate on the vast network of subsidiaries that facilitate corporate tax dodging.

Tax justice depends upon achieving transparency in the system, which is why public country-by-country reporting (CBCR) for multinationals is a core demand by tax campaigners. Such a measure would require companies to publish information about their profits, assets and tax payments, subsidiaries and the number of employees in every country in which they operate. Public CBCR would expose the profit-shifting schemes that allow multinationals to pay little to no tax across entire continents.

The European Commission’s current proposal for CBCR goes neither far nor deep enough. Only by making such a measure fully public and by extending its scope to include all countries, tax havens and a broader range of companies – not just those with an annual turnover of €750 million, excluding 85-90% of multinationals – will the EU truly be able to reveal the scale of its tax problem. The UK, in particular, must seize the opportunity to improve the Commission’s proposal and achieve real corporate transparency. George Osborne, Britain’s Chancellor of the Exchequer, recently expressed his support for public CBCR, yet when we at EPSU wrote to him asking for more detail about his plans at EU level, his response was evasive to say the least.

Following a full assessment of the information revealed through public CBCR, a sanction-based blacklist of all known tax havens worldwide must be drawn up, including British overseas territories and crown dependencies and regions stretching beyond the EU’s borders. There can be no exceptions here. Unless all tax havens are included on the list, it will achieve little more than to outsource the business of tax dodging to third countries. Last year, the UK government fought hard to dilute a first attempt by the Commission to publish a list of tax havens that included a number of British overseas territories. Whether the UK and its powerful city of London will take a different approach this time remains to be seen.

With more than half of the companies exposed in the Panama Papers registered in British-administered tax havens, as well as in the UK itself, this measure has important implications for Britain. Until they agree to full transparency of their tax arrangements, these territories and crown dependencies must expect to be brought back under British rule.

The UK must also stop resisting an EU tax on financial transactions (FTT), which the French and German governments have promised to deliver by June. Such a tax would not only raise billions and curb out-of-control markets, it would also reveal the shady transactions that play a big part in the tax avoidance industry. The UK claims to support such a tax at international level, but not in the EU.

With every new revelation of the corrupt practices of individuals, including heads of governments and multinationals, of sweetheart deals between tax authorities and multi-billion-euro companies, and on the hoards of cash hidden in offshore accounts, political leaders make grand declarations that they will renew efforts to halt such practices. With every partial proposal and half-baked sanction, the public loses more confidence in the promises of its politicians.

Such commitments look all the weaker when governments across Europe continue to downsize the budgets and staff of the public authorities tasked with collecting taxes and investigating abuses of the system. EPSU has shown in a report that between the start of the financial crisis and 2012, governments have slashed jobs in tax authorities – the UK being one of the worst EU offenders alongside Greece – with more than 20% job losses in HRMC, Britain’s revenue and customs department. Tax authorities need more human and material resources, not cuts. This will be crucial to investigating corporations such as McDonald’s, whose aggressive tax avoidance strategies are estimated to have cost the UK up to £75.7m in tax revenues between 2009-13, according a report jointly published by EPSU.

Failure to tackle tax dodging in earnest will be a devastating indictment of a political leadership unwilling to make changes that are within its reach. As multinational corporations and rich individuals accrue ever-greater sums in hidden accounts, European governments strangle public budgets and impose ever harsher austerity measures on populations that are already suffering from the aftermath of a crisis not of their making. Our patience can only go so far.

Tackling this problem is more than a question of money. Tax justice is about morality; it’s about the kind of society we wish to live in. There must now, finally, be a decisive end to the special treatment that keeps multinationals and the rich from paying their dues in full.

*Jan Willem Goudriaan is General Secretary of EPSU and Nadja Salson Policy Officer for central government and tax at EPSU

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