Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Curbing Tax Avoidance, Tax Evasion And Tax Havens

Paul Sweeney 14th December 2015

Paul Sweeney

Paul Sweeney

The aggressive tax avoidance by multinational corporations (MNCs) where they are now paying virtually no tax was highlighted recently by the takeover of “Irish” company Allergan by Pfizer in a blatant tax-avoidance move. Such tax avoidance by these companies is facilitated by sovereign nations in their “tax wars” between each other, vying for foreign investment. They are ceding billions in taxes to multinational corporations while beggaring their own exchequers.

Governments have woken up to these tax losses; progress is being made, but much more needs to be done.

Figures released from the OECD confirm that corporate tax revenues have been falling across OECD countries.

Corporate incomes and gains fell from 3.6% to 2.8% of gross domestic product (GDP) over the 2007-14 period. Forced to make up the difference, revenues from individuals’ income tax grew from 8.8% to 8.9% and VAT revenues grew from 6.5% to 6.8% over the same period

the OECD said.


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

It argues that this trend “underlines the urgency of efforts to ensure that corporations pay their fair share.”

OECD’s anti-avoidance BEPS programme has achieved more in a few years than many would have expected. Global tax reform is complex especially with so many countries involved and with the growth of the digital economy.

Tax evasion is the non-payment or underpayment of tax. It is illegal. The level of tax evasion globally is huge, based mainly around criminal activities, but includes sums not paid by firms of all sizes and by individuals. Tax evasion in Europe is estimated to be almost 20 percent of GDP. But it ranges from as high as 32.3 percent in Bulgaria, down to single digits in other states. Progress is being made on curbing evasion. Governments must now work together effectively and particularly seek to eviscerate the activities of tax havens and their banks.

Tax avoidance is growing. It is the legal minimisation of tax liability by companies or individuals. With globalisation and aggressive tax planning by the Big Four accounting firms and other major tax planners, tax avoidance is now big business. Some governments may be encouraging tax avoidance in order to win mobile foreign investment, with the only long-term winners being multinational corporations (MNCs).

Tax havens are jurisdictions which allow money to be stored in great secrecy, protecting depositors and firms from the prying eyes of the law. These tax havens are built on banking the illegally-gained money of criminals and rich tax evaders and corporate tax avoiders. Recent moves to force tax havens like Switzerland, Monaco and others to disclose information on European and US citizens is welcome.

In a globalised and digitised world, tax evasion, avoidance and tax havens pose challenges for governments. The EU is acting on these issues. Being the world’s biggest economic bloc, it could do more, act faster and it could be more effective in curbing tax evaders and avoiders. Popular anger at blatant tax cheating is motivating political action.

Figures from DG Taxation show that nominal rates of corporation tax have fallen in the EU 27 from 35 percent in 1995 down to just 23 percent in 2014. The effective “cash tax payment” can be as low as zero and is too often around 2 or 3 percent of total profits, thanks to transfer mispricing by MNCs.

While Ireland, Holland and Luxembourg are “tax avoidance hubs” within the EU (Switzerland is another one on the outside) many other EU member states also “compete” with specialist offerings for MNCs tax avoiders.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

The power of organisations like the big accounting and legal firms in influencing taxation policy is undermining faith in the democratic system. Taxation is complex and the policy debate is now deeply influenced by these experts who are coincidently paid by MNCs and rich people. NGOs, citizens and indeed politicians are not as well informed and are hopelessly funded compared to these interests. The tax “professionals” even have staff embedded within government tax departments, influencing policy. They also fund “research” on taxation in universities, with some academics also influencing tax policy.

Tax “competition” (tax wars) does not work in an economic and social union. The race towards the bottom has already reduced nominal and effective corporate tax rates substantially.

The Solutions To Global Tax Avoidance And Evasion

A number of steps should be taken by the European Commission to curb tax avoidance, tax evasion and tax havens as suggested in an ETUI paper by the author.

  • EuroTax should be established as an international European-wide tax investigation centre, well funded, with wide powers of investigation into tax evasion and avoidance by wealthy individuals, companies and criminals.
  • The European Commission should immediately establish a widely representative once-off Commission on European Taxation of “wise persons” to chart the evolution of taxation for the Union, based on broad principles of taxation.
  • The tax system in Member States should be simplified by abolishing many exemptions and allowances.
  • The moves to deal with tax avoidance by MNCs through BEPS, profit shifting to tax havens and base erosion are welcome but we need: public disclosure of country by country company accounts; shadow banking and private pools of capital must be dealt with effectively; to facilitate greater participation of developing countries in EU tax reform; a public register of the beneficial owners of companies and trusts in Europe in one digital location.
  • Tax Competition / Tax Wars between Member States to win FDI is ultimately self-defeating, as nominal and effective tax rates plummet. Taxation must be coordinated effectively within the Union to end the current race towards the bottom.
  • There should be a mandatory Common Consolidated Corporate Tax Base in the EU with coordination of rates within a range of say 15 to 35 percent for EU states.
  • The Big Four accounting firms should be broken up and steps taken to separate responsibility for functions such as auditing, taxation and consulting to avoid conflicts of interest and governments should cease embedding their staff in economic and tax departments.
  • MNCs should be required to publish full accounts in each country in which they operate including information on the relative and absolute amounts of economic activity in each country (e.g., sales, employment, investment).
  • All major companies should be required to publish the annual “cash tax payment” made by the company in the economy. In short, the actual tax payment for each year and not some provision or other evasive figure be published.
  • The moves to force tax havens such as Switzerland, Monaco etc. to disclose information on European citizens is welcome but the European Commission should move hard against all tax havens within its geographical area to eliminate any loss of tax revenue from all 28 states in every way possible.

 

In conclusion, tax evasion and avoidance have contributed to rising inequality and to the decline in labour’s share of national income in most countries. The ETUC has adopted most of these recommendations and it is essential that the European Commission and European Parliament follow. Reverse takeovers and blatant tax avoidance by MNCs is undermining democracy. By moving effectively to reduce tax cheating better public services can be funded, economies can become more efficient and fairer.

Paul Sweeney
Paul Sweeney

Paul Sweeney was chief economist with the Irish Congress of Trade Unions for a decade.

You are here: Home / Politics / Curbing Tax Avoidance, Tax Evasion And Tax Havens

Most Popular Posts

Visentini,ITUC,Qatar,Fight Impunity,50,000 Visentini, ‘Fight Impunity’, the ITUC and QatarFrank Hoffer
Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse
income inequality,inequality,Gini,1 per cent,elephant chart,elephant Global income inequality: time to revise the elephantBranko Milanovic

Most Recent Posts

energy transition,Europe,wind and solar Europe’s energy transition starts to speed upDave Jones
equality bodies,gender equality Setting standards for national equality bodiesEvelyn Collins
Pakistan,flooding,floods Flooded Pakistan, symbol of climate injusticeZareen Zahid Qureshi
reality check,EU foreign policy,Russia Russia’s invasion of Ukraine: a reality check for the EUHeidi Mauer, Richard Whitman and Nicholas Wright
permanent EU investment fund,Recovery and Resilience Facility,public investment,RRF Towards a permanent EU investment fundPhilipp Heimberger and Andreas Lichtenberger

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

ETUI advertisement

The EU recovery strategy: a blueprint for a more Social Europe or a house of cards?

This new ETUI paper explores the European Union recovery strategy, with a focus on its potentially transformative aspects vis-à-vis European integration and its implications for the social dimension of the EU’s socio-economic governance. In particular, it reflects on whether the agreed measures provide sufficient safeguards against the spectre of austerity and whether these constitute steps away from treating social and labour policies as mere ‘variables’ of economic growth.


DOWNLOAD HERE

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

Foundation for European Progressive Studies Advertisement

The winter issue of the Progressive Post magazine from FEPS is out!

The sequence of recent catastrophes has thrust new words into our vocabulary—'polycrisis', for example, even 'permacrisis'. These challenges have multiple origins, reinforce each other and cannot be tackled individually. But could they also be opportunities for the EU?

This issue offers compelling analyses on the European health union, multilateralism and international co-operation, the state of the union, political alternatives to the narrative imposed by the right and much more!


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube