21 st March 2012, European Economic and Social Committee TAX AND FINANCIAL HAVENS: A THREAT TO THE EU’S INTERNAL MARKET John Christensen Director, International Secretariat

Mission Statement In an era of globalisation, the Tax Justice Network is committed to a socially just, democratic and progressive system of taxation. TJN campaigns from an internationalist perspective for a tax system which is favourable for poor people in developing and developed countries, and finances public goods and taxes harmful activities which pollute and cause unacceptable inequality.

GLOBALISATION’S FAULTLINES Tax havens are a fully networked and global parallel financial economy: they are a core feature of contemporary capitalism Tax havens shape trade and investment patterns as banks and major companies avoid regulation and minimise tax. Tax havens played a major role in shaping the 2007/08 financial crisis and in creating a criminogenic economic environment The big players in this parallel economy are not tiny islands or obscure alpine principalities: they include major and influential countries like Switzerland, United Kingdom and United States

The damage done:  Microeconomic distortions harm market competition  At the macro level, tax competition shifts the relative costs of labour and capital  Lack of transparency raises risk premiums  Aggressive avoidance harms tax systems and public finance, and encourages economic free- riding  Secrecy increases the profitability of economic crime  Encourages rent-seeking activities  Damages trust and institutional quality

For our purposes ‘secrecy’ describes a situation in which relevant information is not readily available on public record, where public record means a register that can be accessed free of charge or at low cost via the internet from anywhere in the world. What do we mean by secrecy?

Knowledge of beneficial ownership Key aspects of corporate transparency regulation Efficiency of tax and financial regulation International standards and cooperation 1Banking secrecy 4Public company ownership 7Fit for information exchange 11Anti-money laundering 2Trust and foundation register 5Public company accounts 8Efficiency of tax administration 12Automatic information exchange 3Recorded company ownership 6Country-by- country reporting 9Avoids promoting tax evasion 13Bilateral treaties 10Harmful legal vehicles 14International transparency commitments 15International judicial cooperation 15 financial secrecy indicators 8

European countries including overseas dependencies by secrecy score – source: 2011 Financial Secrecy Index AN, BM, LI, MS, TC AD, AI, CH, GG, GH, GI, JE, KY, MC, SM, VG BE, CY, DE, FR, PT GB, HU, IE, IT, LV, MT, NL DK, ES AT, IM, LU Exceptionally secretive Moderately secretive

Proceed with reforms to strengthen the Savings Tax Directive, and promote automatic information exchange as the effective international standard; sanction non- cooperative jurisdictions Adopt a Financial Reporting Standard on country-by-country reporting Require full public disclosure of beneficial ownership of trusts, companies, foundations and similar legal entities Adopt a Common Consolidated Corporate Tax Base and tax MNCs on a unitary basis Strengthening the transparency and governance of the EU’s internal markets “They serve no socially useful function. They exist only to circumvent norms. They undermine good governance.” Joseph Stiglitz

Strengthen international cooperation with a primary objective of ensuring that national tax systems do not have negative external impacts on tax sovereignty elsewhere (UN Tax Committee proposals under Monterrey Consensus) Define tax evasion as a corrupt activity within the scope of the UN Convention Against Corruption, and treat as a predicate crime under AML regimes (Financial Action Task Force) Adopt an EU General Anti-Avoidance Principle and require professional associations (e.g. bankers, lawyers, accountants, trust administrators) to issue guidelines to their members on the use of secrecy jurisdictions Enhanced cooperation 'By eroding the revenue base, tax competition can become too much of a good thing… Bidding wars between countries can undermine the collective revenue base. This increases the tax burden on the less mobile industries and on labour, relative to capital.' Financial Times

Financial Times - 26 September 2003 “Shaxson comes as close to anyone ever has in getting to the crux of the tax haven conundrum, which is to attempt to answer the question: why are they tolerated?” Evening Standard “Combines meticulous research with amusing anecdotes, resulting in a very readable account of the murky world of offshore and a strong moral message that the system needs to be changed.” Financial Times “A blistering account of the role that tax havens play in international finance. Brilliant.” London Review of Books “..the most important book…since the Spirit Level.” OpenDemocracy “Shaxson is an imbecile…” Tony Travers Cayman Islands Financial Services Authority