Should Ireland, Luxembourg, the Netherlands and Switzerland be black-listed as tax havens?

On 5th December, the EU published a ‘black list’ of 17 tax haven countries, and a further 47 countries on a ‘grey list.’

According to Oxfam, the international charitable organisation for the alleviation of poverty, at least 35 additional non-EU and 4 EU countries should have been included in the ‘black list’, including Ireland, Luxembourg, the Netherlands and Switzerland.

Oxfam’s justification was that those countries apparently fail their interpretation of the EU’s ‘fair taxation’ criterion, for which Oxfam includes a zero per cent corporation tax indicator. This black-listing is despite those countries satisfying the two other criteria of ‘tax transparency’ and ‘implementation of anti-BEPS measures.’

Given that UK corporation tax rates have reduced from 45% in 1969 to 19% in 2017, presumably the UK is on track to be black-listed or grey-listed sooner rather than later.

I would be very interested to hear your views on this. Here are my thoughts:

  1. It’s a valid debate. No one could deny that tax advantages can be manipulated by large corporates and wealthy individuals.
  2. Much the criticism of ‘tax havens’ from organisations such as Oxfam and Tax Justice Network seems to be that competition between countries on tax rates produces a ‘race to the bottom’, and that is not in the interests of the countries concerned. From my perspective, this is not a moral objection, it’s a question of whether a strategy works or not (i.e. whether lower corporation tax rates can encourage higher investment and employment, and a higher overall tax take through employment taxes etc). Surely the only way of testing this is empirically – much as I respect the economists on both sides of the argument, it seems to me that economic predictions are as reliable as weather forecasts in England. So the idea of ‘naming and shaming’ countries on their tax rates seems ridiculous.
  3. Including adoption of BEPS measures as an indication of tax propriety is back-to-front. BEPS and Transfer Pricing generally is a set of tools for countries to claim to increase the profits they can tax, not decrease them.
  4. Secrecy breeds suspicion, and transparency breeds trust. For corporates, I would advocate a policy of ‘enlightened self interest’ and voluntarily publishing their own Country-by-Country Reports under BEPS – especially for those groups with a ‘clean’ structure and a transfer pricing strategy which is aligned to substance and corporate governance. For those groups whose structure does not reflect the principles they stand for – clean up the structure, and then publish.

If you need help cleaning up your structure, you may find our free resources helpful. Click here for the current list.

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