EU targeting non-EU financial centres?

There is an old saying that if you are not seated at the table, you’re on the menu for lunch.  One of the problems that some of the smaller international finance centres have struggled with for many years is that for the most part they do not sit on the big powerful decision-making bodies such as OECD and the G20 which take the key decisions regarding international initiatives impacting the finance industry.  The upshot is often that those around the table at those decision-making fora pass resolutions which suit themselves, and often seem to unfairly target those jurisdictions which are unrepresented.  How else can you explain the fact that Delaware, for example, does not seem to be a target of all of the anti-tax-avoidance initiatives we have seen recently, when it is in essence one of the biggest tax havens in the world?

Another example of this now seems to be under way.  The taxation and customs department of the EU civil service (TAXUD) is currently working on a strategy on tax havens and unfair tax competition, which it hopes to release by the end of this year. The report is looking at issues arising from both double taxation and double non-taxation, and is likely to propose both the introduction of automatic information exchange at EU level and concrete measures which can be taken against non-cooperative tax jurisdictions and aggressive tax planning.

As an EU initiative, of course, many of the international finance centres (such as the Cayman Islands, Jersey and Switzerland) are not participating in the discussion, whereas countries such as Netherlands, Luxembourg and Ireland are very much involved as EU member states.   Whilst these latter 3 countries try very hard to avoid the tax haven label, it is inescapable that the large part of their financial business derives not from domestic companies, but from corporations using those locations as a place of convenience specifically for their tax advantages.  By my definition, this means they are in effect tax havens, despite the fact that they find the label distasteful.  The consequence of them being involved in the strategy decisions is that the TAXUD Communication focuses on non-EU countries and territories, and largely ignores those within its own boundaries.  If, as appears likely, the final report proposes measures which apply to centres outside of the EU but not to those within it, then the likely outcome is a relocation of financial flows from international to European tax havens.

It is likely ever to remain thus within the EU, so long as the rule remains that all tax decisions to be taken at European level require the unanimous support of the members.  There is little point in TAXUD proposing measures which target Luxembourg, Netherlands and Ireland’s finance industries, as they would simply veto the proposals.  The result is unfortunate.  The EU makes much noise and posturing about the morality of tax avoidance, but at the same time is both unable and unwilling to start by putting its own house in order.