Monday, June 14, 2010

EU Council: progress and weasel words

This new document from the EU Council has both good and bad in it.

The good points include some useful preamble:

Point 1. Mobilisation of domestic resources for development through efficient and fair tax systems is crucial for sustainable growth, reducing aid dependency, poverty reduction, good governance and state building, including the provision of public services required to achieve the Millennium Development Goals (MDGs). Efficient and fair tax systems are integral to democracy, promote state legitimacy and strengthen the social contract and accountability between government and citizens.

And at face value this is promising:

EU member states should work towards . . .

"A global system for exchange of tax information, including through multilateral instruments, building on the EU and OECD experiences on spontaneous, on-request and automatic exchange of information."

However, while a global, multilateral system for tax information exchange is important, the rest are weasel words that avoid saying automatic information exchange is the only effective tool for deterring tax evasion.

The document also calls on International Financial Institutions to include information exchange criteria in their Reports on the Observance of Standards and Codes (ROSCs) frameworks; and to check

"whether or not a country treats fraud as a criminal offence that requires a report such as it is the case with money laundering."


This is potentially useful, but the wording is unclear: do they mean tax evasion, as a predicate offence which would require a financial intermediary to issue a suspicious activity report? They should be clearer. This is also useful:

"IFIs must carry out a broad based due diligence to avoid that EU funds are being used directly or through Offshore Financial Centers, so-called tax havens or any other jurisdiction, for the purpose of evading tax payment to beneficiary countries and EU Member States or in connection with tax fraud and avoidance;"

and this:

"Exploring country-by-country reporting as a standard for multinational corporations,"

There is plenty of less good stuff.

One is:

"Developing countries have primary responsibility for building and improving efficient and fair tax systems and committing the necessary resources thereto."


Well, yes, these countries do have responsibility for their own tax systems. But when their systems are being shredded and penetrated from outside, by the aggressive behaviour of OECD companies and jurisdictions, then it would have been far better for the EU Council to have been far, far more explicit in stressing that EU member states need to do a whole lot more.

While it is good to see that any wording on beneficial ownership information has been included, it is unfortunate that it only speaks about "availability" instead of automatic information exchange thereof. And the term "could" rather than "should" in the following paragraph suggests that the dead hand of special interests has been at work on depleting the strength of the document"

"First steps at the international level could be to promote the availability of the beneficial ownership of all legal structures taking note of the ongoing review of the international standards of the Financial Action Task Force, as well as to strengthen the role of the Global Forum on Transparency and Exchange of Information. "

Any mentioning of opening the EU STD to developing countries has disappeared.

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