The EU checks the multinationals for tax fraud but Britain may sail out of the EU via Panama

The Panama Papers did not offer to the world community much more news than most people already knew. For example, the ‘revelation’ that a close friend to the Russian President Vladimir Putin was enormously rich without having labored for his wealth, is no news at all. Every Russian or informed citizen in the entire world was sure that Putin has nurtured a business oligarchy of his own in the long years of his almost absolute rule. Today, the Russian economic oligarchy boldly usurps large parts of the country’s GDP, spinning it around the world as it pleases. The same is true for a number of Arab and African political leaders. So the Panama Papers didn’t make us wiser, it reminded us though what our leaders really care about. What about Britain? Indirectly, the Panama Papers also reminded us that Britain itself is a tax haven and not just its many overseas territories and crown dependencies. Those latter cases are notorious as a refuge for tax fraudsters and criminals from time immemorial. It’s a fact that the UK government permits to non-domiciled super-rich of any kind to live and do business, without paying income or capital gains tax on overseas earnings. PM David Cameron’s late father was legally able to create an offshore company, parking his wealth there and actually transferring the product of such gains to his son. Cameron himself may have published his own seemingly faultless tax returns of the last six years, but what about his wealthy stockbroker late father’s tax records and the £200,000 gift from his mother? Were his parent’s tax affairs equally spotless? In any case, this is a matter of the British tax authorities and more so of the country’s political system to clarify. Angered Brits? The problem is that Britain may sail this June out of the EU via Panama. In referendums, voters cast their ballots thinking about a lot more than the question asked. They tend to express their disappointment or anger with the general social, economic and political situation. Greece in July 2015 and Holland last week proved that. Coming back to Cameron’s apology about his wealth, his move triggered a wave of criticism from leading conservative politicians and other quarters. Senior Tories told Cameron that he bent to ‘populism’ by publishing his tax returns. Obviously, Britain’s ruling classes do not think they are accountable to lay people, about the way they have acquired their wealth. The Financial Times leading business columnist went as far as to defend the ‘right’ of retired politicians to gain from their involvement in politics. The conclusion that the average man in the street can come upon is then, that Britain itself is not only a tax haven, but its ruling classes consider it as their prerogative. Many political analysts say that a number of eurosceptic conservatives and some business leaders want their country out of the EU, in order to be able to dent even the basic workers’ rights that Brussels has imposed on all EU countries. Brussels felt the heat As it turns out, the publications of those 11.5 million pages of internal documents from the Panamanian law firm Mossack – Fonseca, which specializes in offshore business, had one more important but indirect effect. It pressed the European Commission to hastily make the big multinational firms come clean on their tax obligations. For the first time in history Brussels’ intention is now to make sure that business profits are taxed in the country where they are generated. For years there was much talk about that, but nothing concrete came forward. Finally, last Tuesday afternoon, Lord Hill, the EU‘s British financial services commissioner, said that there is strong support in the College of Commissioners, for a proposal about compelling all large multi-nationals operating in Europe to publish information on the tax they pay, country-by-country. He added that “While our proposal is not of course focused principally on the response to the Panama Papers, there is an important connection between our continuing work on tax transparency and tax havens that we are building into the proposal.” EU’s tax havens Lord Hill forgot to say though that, in reality, there are tax havens even within the European Union. The fact is that a number of EU member states like Ireland, Cyprus, Bulgaria and Luxembourg (0% tax on dividends and capital gains in the Grand Duchy) and some more impose very low income tax on company profits. Differences are quite impressive between the 12.5% tax on profits in Ireland and Cyprus and 10% in Bulgaria compared to around 35% to 40% in Germany, France, Austria and elsewhere in mainland Europe. There is a strong incentive then for multinationals to choose in which country to be taxed. The same is true for the giant American multinationals which go as far as to spend billions in order to acquire companies based in Ireland and transfer their headquarters in Dublin. The obligations of multinationals In short, the latest Commission proposal contains the following main lines: *It would affect the larger multinationals – those with annual global revenues above €750 million *Those companies will publish information in seven key areas: -The nature of their activities; -How many staff they have; -Their net turnover; -Their profit before tax; -The amount of tax due based on yearly profits; -The amount of tax they actually paid in that same year; and -Their accumulated earnings. The proposal will impinge on about 6.500 businesses and 90% of multinational revenues in the EU. Reporting on outside business Understandably, “this kind of information is already collated and provided to national tax administrations”. However, now the companies in question will also be obliged to report on the total tax they pay outside the EU. In relation to this last obligation, Lord Hill added that “we’ve also decided that if they pay taxes outside the EU in countries or jurisdictions that don’t abide by international good governance standards on tax, multinationals would have to publish the same detailed information as for a European country. So if large multinationals active in Europe are paying tax in somewhere like Panama – to take one example – they’d need to make that public”. Hopefully, if all this information is gathered, proven to be correct and is freely shared by all EU tax administrations and the Brussels authorities, multinationals may be forced to pay taxes where they make their profits. Of course, this will not make our brave new world a just and equitable place, but it’s a step in this direction. Consequently, the Panama Papers leak indirectly offered us all something that may prove of great value, that ‘nothing remains secret under the sun’.