Tax havens and tax competition
European Commission – Directorate-General Taxation and Customs Union
EU policies towards tax havens and tax
competition
Matthias MORS
DG Taxation and Customs Union
Slide: 1
The general framework
European Commission – Directorate-General Taxation and Customs Union
 The European Union has no policy specific towards “tax
havens”, but pursues a general policy on tax competition
and good governance
 EU Member States are free to adopt their policies towards
“tax havens” provided they respect Community law (in
particular the “fundamental freedoms” enshrined in the
EC-Treaty)
 EU policy focuses on
establishing certain (minimum) ground rules with
respect to tax evasion and tax avoidance within the EU;
trying to avoid that jurisdictions outside the EU
undermine these intra-EU efforts;
Slide: 2
EU policy framework
European Commission – Directorate-General Taxation and Customs Union
 Any country/jurisdiction is free to set its (general)
tax rates in the field of direct taxation even if this
implies low or zero taxation
 Certain types of preferential tax regimes are
considered to be “harmful” and should therefore
not be used
 Each country should be in the position to properly
enforce its tax rules (particularly relevant for
residence taxation), thus requiring the
cooperation of other countries
Slide: 3
The fight against tax avoidance and evasion
European Commission – Directorate-General Taxation and Customs Union
 Key problem:
lack of transparency and lack of cooperation/exchange of
information (key concerns: individuals, but also transfer
pricing and corporate malpractice like Parmalat, Enron, etc.)
 EU objectives:
 Bilateral exchange of information (on request, spontaneously
or automatically, e.g. as in the case of savings income)
 Mutual assistance
 Intra-EU instruments:
 Mutual Assistance Directive and Directive on Mutual
Assistance in Recovery
 Directive on the taxation of savings income (of private
individuals)
Slide: 4
The fight against tax avoidance
European Commission – Directorate-General Taxation and Customs Union
 Key problem:
 Harmful tax practices using preferential regimes
(business taxation)
 EU objectives:
 Prevent significant losses of (notably corporate) tax
revenue
 EU instrument:
 The Code of Conduct on business taxation (political
commitment; main criteria: ring-fencing; absence of
economic substance; deviation from international
principles; lack of transparency)
 [PM: some overlap with EC Treaty rules on State aid
(main criteria: selectivity; granting an economic
advantage through State resources; affecting trade)]
Slide: 5
EU policy towards third countries/
jurisdictions
European Commission – Directorate-General Taxation and Customs Union
 Respect for the sovereignty of countries/jurisdictions to
decide on the tax system for their citizens/residents
 Good governance in the tax field part of a broader
approach to good governance (fight against fraud,
corruption, money laundering, financing of terrorism etc.)
 To the largest extent possible, EU policies should be
compatible with, and supportive to, OECD work on
harmful tax practices
 EU policies to complement Member State policies and to
set a framework to be used by Member States
 So far little appetite for “co-ordinated defensive measures”
Slide: 6
EU policy towards third countries/
jurisdictions
European Commission – Directorate-General Taxation and Customs Union
 “Give and take” approach more likely to be successful:
“Give”:
Where appropriate, the EU is willing to provide technical
assistance, financial assistance for economic adjustment or
trade facilitation/access to the EU market
“Take”:
The EU expects third countries to respect internationally
recognised standards of good governance in the field of
taxation: transparency and exchange of information (on
request)
The EU and its Member States are committed to promoting
the adoption of the principles of the Code of Conduct in
third countries (Paragraph M of the Code)
Slide: 7
EU external policy instruments
European Commission – Directorate-General Taxation and Customs Union
 European Development Fund (EDF)
Volume: 22.6 bill.€ for the period 2008-2013
Geographical scope: 77 African, Caribbean and Pacific
countries (ACP) and 20 Overseas Territories (OCT)
Programming on the basis of partnership approach and
“demand” expressed by the beneficiaries
Newly introduced “incentive allocation” related to
government commitments (“additional money”);
 Economic Partnership Agreements (EPAs)
Geographical scope: 6 regions of ACP countries
Follow-up to Cotonou-Agreement: market access at
stake
Slide: 8
EU external policy instruments (cont.)
European Commission – Directorate-General Taxation and Customs Union
 Partnership and Cooperation Agreements (PCAs)
linked to Free Trade Agreements (FTAs)
 Association Agreements
 European Neighbourhood Policy (ENP)
 Savings Agreements (bilateral and multilateral)
Various agreements with Switzerland, Liechtenstein,
Monaco, San Marino, Andorra, Overseas Countries
and Territories (OCTs), etc.
Frequently benefits accorded in terms of market access,
free movement, etc.
Slide: 9
Challenges encountered
European Commission – Directorate-General Taxation and Customs Union
 Limited political awareness
No systematic quantitative data on “revenue leakage”
Citizens not conscious of the problem
 International standards in the tax field less firmly
established than in other areas
For example, no international convention like in the
case of corruption
 EU tax policy decisions have to be taken
unanimously
Some EU Member States have economic interests that
are to some extent similar to those of “tax havens”
Slide: 10
Challenges and perspectives
European Commission – Directorate-General Taxation and Customs Union
 Distinction between (acceptable) general tax
competition and (harmful) preferential regimes
not always economically straightforward and
sometimes difficult to maintain
 Sometimes debate about “Community
competence” versus “Member State competence”
 Long lead times for negotiating new or adapting
existing agreements
 Only at the beginning of an internationally coordinated, integrated policy for promoting “good
governance” in the tax, financial and judicial field
Slide: 11