Nick Shaxson ■ Europe must impose withholding taxes on payments, to target U.S. and other tax havens
For immediate release. Jan 21, 2016
Europe must impose withholding taxes on payments, to target U.S. and other tax havens
Global transparency scheme in peril: strong action now needed
The Tax Justice Network is calling for the European Union to follow the United States in imposing a withholding tax against jurisdictions that do not meet new standards of tax transparency – starting with the United States itself.
John Christensen, director of the Tax Justice Network, said:
“While rightly demanding greater transparency from others, the USA has established itself as the fastest-growing provider of tax haven secrecy – and only the EU has the power to act.” He added, “Otherwise we risk seeing a world where only the richest and most powerful country can protect its tax system from offshore abuse, while EU countries – not to mention developing countries – pay the price.”
The world is entering a new era of global financial transparency, where tax authorities can at last find out about their wealthiest taxpayers’ offshore and overseas holdings so they can be taxed appropriately, with confidentiality safeguards. The OECD, a club of rich countries, is rolling out a global scheme of information-sharing across borders, the so-called Common Reporting Standard (CRS,) to achieve this.
The system, though flawed, represents a great step forwards from a secrecy-blighted past. Yet several recalcitrant jurisdictions are refusing to engage seriously: putting conditions in the place before they will exchange information, particularly with developing countries.
The worst recalcitrant by far is the United States. Its own transparency scheme, the Foreign Account Tax Compliance Act (FATCA,) robustly cracks down on U.S. offshore tax cheats. But it is far less willing to share information in the other direction, to help others. This makes it the haven of choice for the world’s criminals and tax evaders. As a top U.S. tax lawyer put it recently:
“That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA . . . welcome to the new Switzerland.
The U.S. is putting the entire emerging global transparency regime – essential for cracking down on wealthy tax cheats and criminals – at risk. Not only does US opacity exacerbate the problem directly, it also legitimises the non-cooperation of Switzerland, Bahamas, Panama and other recalcitrants. There is a serious risk that rather than a level playing field of greater transparency, the result will instead be greater inequality, globally.
The U.S. FATCA project has been effective unilaterally because it contains a big stick: a 30% withholding tax on US-sourced payments to any financial institution that don’t comply with it. The OECD’s CRS doesn’t have a big stick like this. If the OECD won’t wield the big stick, Europe has to.
So we urge the EU to copy the U.S. and implement a new withholding tax regime to counter this global threat. It can either direct this just against U.S. financial institutions, or take the courageous road and target all the recalcitrants – and take up the fight on behalf of vulnerable developing countries, which are being systematically looted by their elites with the proceeds stashed offshore.
At stake is the important principle that transparency should be provided to all – including to vulnerable developing countries. The EU should insist on an inclusive global approach – and use the big stick to deter and stop the cheats.
The accompanying short briefing paper provides the details of what is required.
Andres Knobel, [email protected], tel. +54911 6008 3197
Nicholas Shaxson [email protected], tel. +49 172 772 9806
Markus Meinzer [email protected], tel. +49 178 3405673
Alex Cobham [email protected] tel. +44 7982 236863
John Christensen [email protected] tel. +44 7979 868302