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 2nd May 08 - David Cronin, IPS News
Tax havens in Europe are depriving poor countries of more money than they receive in development aid, it has been alleged. Some
11.5 trillion (million million) dollars is held in offshore accounts
across the world, according to Tax Justice Network, a grouping of
economists, accountants and academics. Because tax authorities are
unable to touch this money, they effectively lose 250 billion dollars
per year: the equivalent of five times what the United Nations
estimated in 2002 as needed to finance its Millennium Development Goals
of reducing poverty.
John Christensen, the network's spokesman, argues that the
European Union has a "slightly schizophrenic" attitude towards the
problems posed by massive tax evasion and avoidance.
While EU institutions have been "leading the world" in taking some
initiatives against tax competition, many of the world's most notorious
tax havens are located within the EU or on the overseas territories of
its member states, he noted. These include the City of London (the
financial district of London), Luxembourg, the Cayman Islands, Jersey
and Guernsey.
Christensen, who has previously worked in Jersey's banking
sector, cited data from the University of Massachusetts suggesting that
Africa has lost 607 billion dollars because of capital flight -- or
five times the amount it has received in development aid -- since 1970.
Capital flight involves the movement of money from one country to
another where a firm believes he or she will get greater returns.
According to Christensen, Britain is one of the main culprits
in attracting capital flight by leaving financial services companies in
the City of London to a significant extent unregulated. "The City of
London is the biggest tax haven in the world," he said. "Britain is
very happy to attract capital out of Africa, Asia and Latin America.
And the City of London is not asking was this capital the proceeds of
crime, embezzlement or fraud."
He voiced support for the EU's code of conduct group on
business taxation. Founded in 1998, this requires EU countries and
their dependent territories to desist from tax practices that are
deemed harmful, such as offering special benefits to non-residents.
Last year the European Commission found that the Isle of Man,
a tax haven off the British mainland, fell foul of the code.
Christensen called on the EU to similarly refuse to approve Jersey and
Guernsey as these two Channel Islands operate a similar tax regime to
the Isle of Man, including a zero rate of corporation tax for many
companies.
Christensen also urged the Commission to take heed of a
request made by the European Parliament in 2007 that stringent rules on
reporting be devised for firms working in the extractive industries
such as mining or oil.
Parliamentarians have demanded that each firm should be
required to publish accounts stating their turnover and what taxes they
pay in each of the countries where they operate. Better rules in this
area, Christensen said, would "radically reduce the ability of
transnational corporations to shift profits out of developing
countries."
Stephen Stork, a tax official in the European Commission,
stated that the EU as a whole has limited powers in addressing matters
of taxation. Responsibility for direct taxation rests primarily with
the union's 27 national governments, rather than with the
Brussels-based institutions.
Still, he said that the work of the EU's code of conduct group
has proved fruitful and that the Union now strives to include clauses
against tax practices deemed harmful in agreements on trade and
political cooperation it signs with foreign countries. "The authors of
the code of conduct knew that tax cooperation should not stop at
borders," he said. "Capital is so mobile."
The European Network for Debt and Development (Eurodad), a
Brussels-based alliance of anti-poverty campaign groups, complained
that issues of financial justice are not being adequately addressed by
the EU.
Although the Millennium Development Goals stipulate that the world's
governments should devise stronger regulation for the international
financial system, no proposals on this matter were contained in a
European Commission paper on attaining the MDGs that was published Apr.
9.
Eurodad is frustrated by the slow rate of progress being made by the
World Bank and International Monetary Fund in addressing the effects of
tax evasion and avoidance on poor countries. In September last year,
the World Bank's President Robert Zoellick said that he would be in
favour of a study being carried out on "the development impact of
offshore financial centres." But campaigners allege that not enough has
been done to follow up Zoellick's statement.
Eurodad is also urging France, which will assume the EU's rotating
presidency in the second half of this year, to insist that the
surrounding issues are placed on the international agenda. Nicolas
Sarkozy, the French president, asked the IMF in February to study the
possibility of a worldwide tax on profits reaped by oil companies. But
campaigners also bemoan how the French government has been supportive
of tax havens in Monaco and Andorra.
"It is strikingly clear that there are huge gaps in the financial
regulation system," said Alex Wilks, Eurodad's coordinator. "We are
quite disappointed to see that the European Commission hasn't been
ambitious enough in seeking to change the financial system to make it
development-friendly. If proposals don't come from the European Union
it is difficult to see from which other quarter we will get leadership
in the months ahead."
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