Hidden Taxes Report: In recent years, Enda Kenny, taoiseach, has made several categorical statements on tax that to informed observers who haven't a vested interest, were economical with the truth, and an international report published Tuesday, says he "has denied any special treatment for Apple despite
the clear evidence to the contrary, revealed through the EC investigation," while he "continues to strongly defend Ireland’s overall tax regime."
Eurodad (European Network on Debt and Development) is a network of 47 non-governmental organisations (NGOs) from 19 European countries working on issues related to debt, development finance and poverty reduction. Its 'Hidden Taxes: the EU’s Role in Supporting an Unjust Global Tax System' [pdf] study says: "To date, it seems that Ireland will move only when it must move collectively. The Irish government supports the OECD process on Base Erosion and Profit Shifting, which at the moment suggests that information from country by country reporting should not be public."
The study says that according to law firm Arthur Cox: “Ireland has… firmly established itself as a location of choice for the establishment of special purpose vehicles (SPVs) for structured finance transactions,” and a favourable tax regime is mentioned as an attractive factor. "Meanwhile, the Irish Industrial
Development Agency [IDA Ireland] tries to attract foreign direct investment by highlighting key characteristics of special purpose entities: namely a favourable tax regime, no withholding tax on dividends paid to or from relevant treaty countries, and the ability to minimise withholding tax on inbound and outbound royalties and interest payments."
The study also points out that relatively small European countries such as Luxembourg and Ireland are among the top receivers of foreign direct investment globally and among the top investors in the world.
The inconsistencies are clear to see. "For example, the investment flow of Luxembourg amounts to more than 45 times the size of the economy. As the International Monetary Fund (IMF) stated in their policy briefing on spillover effects of tax policies 'patterns of FDI are impossible to understand
without reference to tax considerations.'"
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Overall, the report finds that:
- Practices which facilitate tax dodging by transnational corporations and individuals are widely used, in some cases so governments can claim to be ’tax competitive’. This is creating a ‘race to the bottom’ – meaning that many countries are driving down standards to try to attract transnational corporations to their countries. Some of the countries that have been most successful in attracting companies – Ireland, Luxembourg and the Netherlands – are also currently under investigation by the European Commission for making competition-distorting arrangements with transnational companies behind closed doors. Several countries also allow ‘letterbox’ companies and other structures to be set up (so-called Special Purpose Entities – SPEs) which can, and often are, misused for tax dodging purposes.
- European countries have a high number of tax treaties with developing countries, with France and the UK leading the pack respectively with 72 and 66 of such treaties. These treaties often push down the taxation levels on financial transfers out of developing countries, and thus create routes through which transnational corporations can avoid taxation. Of the countries covered by this report, Spain, the UK and Sweden have negotiated the biggest reductions in developing country tax levels through their treaties. Despite several studies proving the negative effects these treaties can have on developing countries, only the Netherlands out of the 15 EU governments covered in this report has so far produced a ‘spillover analysis’ to estimate the impact of these treaties on the world’s poor. Ireland is set to publish a similar study that will hopefully also focus on its tax treaties in the coming months.
- Most EU countries studied have failed to expose the true – or beneficial – owners of companies, trusts and similar legal structures operating within their countries. Some countries have done away with harmful structures that previously helped to hide identities, but are now in the process of creating new problematic structures. Both the Czech Republic and Luxembourg recently decided to abolish anonymous bearer shares – an instrument that has received much international criticism. At the same time, both countries are introducing ‘trusts’ into their national legislation, potentially providing new options for anonymous ownership that might replace the ones that are disappearing.
- Although EU governments have introduced country by country reporting for banks – meaning they will have to adhere to stronger transparency rules – many countries are still reluctant to do this for transnational companies in other sectors.
- Although many are undecided, none of the EU governments studied actively support the establishment of an intergovernmental body on tax matters under the auspices of the United Nations. Such a body would allow developing countries to have a say on global tax standards instead of the current situation, where the Organisation for Economic Development and Co-operation (OECD) is the dominant decision-making body, despite the fact that it only represents wealthy countries.
A direct comparison of the 15 EU countries finds that:
- France is currently the strongest country on issues of transparency and reporting rules for transnational corporations and has actively championed the issue. However, recent developments seem to indicate the government may be back-tracking. Its vast range of tax treaties have also caused substantial lowering of developing country tax rates. No analysis of these impacts is planned.
- Germany, Luxembourg, the Netherlands, Spain and Sweden received a red light on transparency, meaning that they have a lack of transparency of company ownership at the national level or are resisting EU-wide initiatives to promote transparency on company ownership.
- Spain has managed to negotiate the largest reductions in developing country tax rates – an average reduction of 5.3 percentage points - through its tax treaties with developing countries.
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