The Juncker/Tusk letter of 4 July setting out common positions for the EU at the G20 throws down a direct challenge to the Trump administration, on Tax Justice Network priorities in particular – dealing with tax avoidance, tax evasion and anonymous ownership of companies, trusts and foundations.
The tone is striking. The EU is no longer raising these issues for consideration, but laying out expectations of compliance from other states:
Having led these global efforts, the EU expects wide and effective implementation of the agreed standards on tax transparency and good governance. Those not ready to cooperate should bear the consequences. This is why we have a firm stance on a common list of non-cooperative jurisdictions with regard to tax transparency, including defensive measures.
From the context, this reads as putting the USA on warning about three separate failures: the failures to join the multilateral processes in respect both of tax treaties and of the automatic exchange of financial information; and the failure to ensure the availability of beneficial ownership information in support of both tax and counter-terrorism measures.
This is the most direct challenge yet to the increasingly well recognised problem of ‘Tax haven USA’ – that while global progress has been made in these areas, the US as the world’s leading financial services provider has if anything gone backwards, positioning itself as a central player in tax abuse and other corrupt flows.
Our research partners in the EU’s COFFERS programme have recently published peer-reviewed analysis on what they call the ‘redistributive hypocrisy’ of the US. The findings show how US refusal to provide tax transparency, while simultaneously demanding it from every other state, has raised US market share for major capital flows. Relatedly, it was noticeable that a recent OECD document broke with tradition and highlighted the non-cooperation of its biggest member.
Blacklisting tax haven USA?
The question is whether the EU is willing to push this as far as blacklisting the US. The US only made progress against the recalcitrance of other secrecy jurisdictions by using the threat of sanctions against foreign financial institutions to demand automatic provision of financial information (through FATCA). As the Tax Justice Network proposed last year, only the EU has the power to make such a threat to US financial institutions – and only such a threat seems likely to exert the necessary pressure.
This G20 and the following discussions may turn out to be pivotal in determining whether the US can be brought into line with the emerging global standards of financial transparency. The degree of open conflict with the EU is certainly at a new high – and of course in the background are US attempts to intervene in the EU state aid case against Ireland over Apple’s tax dodging.
On the specific issues around beneficial ownership, the Tax Justice Network is disappointed to see the EU talk of “improving authorities’ access to information”. This is the language of past failures, which have seen secrecy jurisdictions create complex mechanisms to give the appearance of access being possible while in practice little if any information is ever shared. The Panama Papers revealed multiple cases of such abuses, even while such a standard was being paid lip service. With the EU and many EITI member countries now delivering public registers of beneficial ownership, this is the standard to which others should be held. As to exactly how that standard ought to look like, we have recently published a checklist on what to take into account when designing these registries. Anything less will simply perpetuate the trade in anonymity that facilitates tax abuse and other corruption all around the world.