Tax havens and tax competition

1
Tax havens and tax competition

• EU policies towards tax havens and tax
  competition
• Matthias MORS
• DG Taxation and Customs Union

2
The general framework

• The European Union has no policy specific towards
  tax havens, but pursues a general policy on tax
  competition and good governance
• EU Member States are free to adopt their policies
  towards tax havens provided they respect
  Community law (in particular the fundamental
  freedoms enshrined in the EC-Treaty)
• EU policy focuses on
• establishing certain (minimum) ground rules with
  respect to tax evasion and tax avoidance within
  the EU
• trying to avoid that jurisdictions outside the EU
  undermine these intra-EU efforts

3
EU policy framework

• Any country/jurisdiction is free to set its
  (general) tax rates in the field of direct
  taxation even if this implies low or zero
  taxation
• Certain types of preferential tax regimes are
  considered to be harmful and should therefore
  not be used
• Each country should be in the position to
  properly enforce its tax rules (particularly
  relevant for residence taxation), thus requiring
  the cooperation of other countries

4
The fight against tax avoidance and evasion

• Key problem
• lack of transparency and lack of
  cooperation/exchange of information (key
  concerns individuals, but also transfer pricing
  and corporate malpractice like Parmalat, Enron,
  etc.)
• EU objectives
• Bilateral exchange of information (on request,
  spontaneously or automatically, e.g. as in the
  case of savings income)
• Mutual assistance
• Intra-EU instruments
• Mutual Assistance Directive and Directive on
  Mutual Assistance in Recovery
• Directive on the taxation of savings income (of
  private individuals)

5
The fight against tax avoidance

• Key problem
• Harmful tax practices using preferential regimes
  (business taxation)
• EU objectives
• Prevent significant losses of (notably
  corporate) tax revenue
• EU instrument
• The Code of Conduct on business taxation
  (political commitment main criteria
  ring-fencing absence of economic substance
  deviation from international principles lack of
  transparency)
• PM some overlap with EC Treaty rules on State
  aid (main criteria selectivity granting an
  economic advantage through State resources
  affecting trade)

6
EU policy towards third countries/ jurisdictions

• Respect for the sovereignty of countries/jurisdict
  ions to decide on the tax system for their
  citizens/residents
• Good governance in the tax field part of a
  broader approach to good governance (fight
  against fraud, corruption, money laundering,
  financing of terrorism etc.)
• To the largest extent possible, EU policies
  should be compatible with, and supportive to,
  OECD work on harmful tax practices
• EU policies to complement Member State policies
  and to set a framework to be used by Member
  States
• So far little appetite for co-ordinated
  defensive measures

7
EU policy towards third countries/ jurisdictions

• Give and take approach more likely to be
  successful
• Give
• Where appropriate, the EU is willing to provide
  technical assistance, financial assistance for
  economic adjustment or trade facilitation/access
  to the EU market
• Take
• The EU expects third countries to respect
  internationally recognised standards of good
  governance in the field of taxation transparency
  and exchange of information (on request)
• The EU and its Member States are committed to
  promoting the adoption of the principles of the
  Code of Conduct in third countries (Paragraph M
  of the Code)

8
EU external policy instruments

• European Development Fund (EDF)
• Volume 22.6 bill. for the period 2008-2013
• Geographical scope 77 African, Caribbean and
  Pacific countries (ACP) and 20 Overseas
  Territories (OCT)
• Programming on the basis of partnership approach
  and demand expressed by the beneficiaries
• Newly introduced incentive allocation related
  to government commitments (additional money)
• Economic Partnership Agreements (EPAs)
• Geographical scope 6 regions of ACP countries
• Follow-up to Cotonou-Agreement market access at
  stake

9
EU external policy instruments (cont.)

• Partnership and Cooperation Agreements (PCAs)
  linked to Free Trade Agreements (FTAs)
• Association Agreements
• European Neighbourhood Policy (ENP)
• Savings Agreements (bilateral and multilateral)
• Various agreements with Switzerland,
  Liechtenstein, Monaco, San Marino, Andorra,
  Overseas Countries and Territories (OCTs), etc.
• Frequently benefits accorded in terms of market
  access, free movement, etc.

10
Challenges encountered

• Limited political awareness
• No systematic quantitative data on revenue
  leakage
• Citizens not conscious of the problem
• International standards in the tax field less
  firmly established than in other areas
• For example, no international convention like in
  the case of corruption
• EU tax policy decisions have to be taken
  unanimously
• Some EU Member States have economic interests
  that are to some extent similar to those of tax
  havens

11
Challenges and perspectives

• Distinction between (acceptable) general tax
  competition and (harmful) preferential regimes
  not always economically straightforward and
  sometimes difficult to maintain
• Sometimes debate about Community competence
  versus Member State competence
• Long lead times for negotiating new or adapting
  existing agreements
• Only at the beginning of an internationally
  co-ordinated, integrated policy for promoting
  good governance in the tax, financial and
  judicial field