Little sign of action despite strong words

Moves against tax evasion would be unnecessary if states used the existing anti-tax evasion and fraud law, writes Ann Cahill

Two thirds of the world’s hidden wealth — estimated at €14 trillion — is stashed in EU tax havens, safe from having to pay €156bn a year to the countries where the money is made.

Britain is leading a crusade to bring home the tax, but a third of the hidden money is in British-controlled tax havens.

And according to Oxfam, a cool €707bn is sitting in accounts in financial institutions in this country.

In the meantime, the US Congress classifies Ireland as a tax haven where 75 of its top 100 publicly traded companies have subsidiaries — some of them dozens of such companies — helping evade paying tax.

A number of bodies estimate that tax fraud and evasion is costing every EU citizen €2,000 a year while taxpayers money is paying for infrastructure and services to keep multinationals in business.

Tax was the hot topic for EU leaders at one of their shortest ever summits in Brussels yesterday, but none of the leaders was willing to mention any countries by name or any companies and were happy to let Enda Kenny off the hook despite the US reports on Apple.

European Parliament president Martin Schulz advocated that companies not paying their fair share of tax should not be eligible to win state contracts or receive state aid. All multinationals should submit country-specific reports that details the taxes they pay, the profits they earn and the number they employ.

If the taxes due were collected, the national debt of all EU countries would be wiped out within a decade, he said. “If people who pay their taxes come to be seen as mugs, social cohesion in nation states and the EU as a whole will be in danger of breaking down.”

Meanwhile, Swedish prime minister Fredrik Reinfeldt pointed out that companies demand the state spend on things to benefit them such as educating the workforce and providing the infrastructure but are not willing to contribute part of their profits to this.

The Taoiseach emphasised Ireland is compliant, was first in line to sign up to the new US agreement on sharing information, is transparent in its tax policies and does not do deals with individual multi-nationals.

He was not willing, however, to say he would investigate whether other companies were using the Irish system to set up companies that were not tax resident anywhere in the world and owe nobody any tax.

The issue is complex. There is tax avoidance, companies and individuals taking advantage of loopholes legally, and then there is fraud, where tax such as Vat and income and other taxes are not paid.

Of the €1 trillion a year that escapes under the tax radar, just €140bn comes from companies utilising national laws to their advantage, while the remaining €860bn is due to fraud.

A major step was taken at the summit when, after 10 years, Austria and Luxembourg agreed they would share information about account holders in their country with other member states. This has also been the key to negotiating with five tax havens in Europe — Switzerland, Andorra, Liechtenstein, Monaco and San Marino. These countries will now be expected to follow suit.

A similar argument has also dogged agreements on tax issues globally. Britain believes it has a mandate to push at the G8 meeting they are leading in Lough Erne, Co Fermanagh, next month for a global standard on the automatic exchange of information relating to tax issues.

They argue other countries must follow the US Foreign Account Tax Compliance Act, where financial institutions must report the accounts held whole or part by US taxpayers. Ireland has signed up to this.

Britain has signed up nine other countries, but not Ireland, to automatically exchange such information between them, based on the US model. However with the UK controlling 10 overseas territories defined as tax havens by the US, the ball is in their court. British prime minister David Cameron wrote to them inviting them to give “full details” on ownership and control of companies.

Britain argues against this being an EU initiative, saying that since it took a decade to get agreement on the savings tax, it is quicker for governments to come to agreements themselves.

But in June, the European Commission will produce proposals for the automatic exchange of information to cover the full range of income. But as frustrated tax commissioner Algirdis Semeta said in Dublin recently — if the member states adopted all the anti-tax evasion and fraud legislation that has been before them for years, there would be no need for this push.