The Real Tax Scandal Is Unfolding in Europe
An intense debate has been raging in the European Union. The EU, say many, could collapse if the bloc is unable to demonstrate sufficient willingness to work together. When Hungary, the Czech Republic and Poland refused to accept their allotted numbers of refugees, criticism rightly rained down on them. The EU, after all, isn’t a one-way street. Countries that receive the benefits of EU membership, including billions from Europe’s structural and investment funds, can’t run and hide when it comes to burden sharing.
Much of that debate has focused on the refugees who poured into the country from Syria in 2015 and who continue to arrive from Africa and elsewhere. But there is another group of refugees who have their eyes on Europe, and that group isn’t made to risk their lives getting here. On the contrary: They are welcomed with open arms – or at least their money is. They are tax refugees, and their presence shines the spotlight on a different group of EU member states, places like the Netherlands, Ireland and Luxembourg, where absurd laws serve to roll out the red carpet for prospective tax dodgers.
The Paradise Papers have shown the degree to which EU solidarity is being undermined and its cohesion imperiled – and it’s happening largely hidden from view. It isn’t just the usual suspects like Luxembourg and Ireland that are using a mix of low tax rates, outlandish corporate structures and lax financial oversight to attract tax refugees. Rather, many additional EU member states are playing the game, such as Malta, Britain and the Netherlands. And by doing so, they are effectively taking money from their EU partners’ coffers – tax revenues that could go toward building much-needed schools and kindergartens or funding health care and pensions. This game is mostly played in the shadows; the structures that tax refugees take advantage of don’t normally make headlines.
Yet the national laws that open up borders to untaxed capital are at least as damaging to EU cohesion as the nationalism and lack of solidarity displayed when it comes to redistributing refugees. The primary reasons for the massive amount of tax evasion, after all, aren’t to be found only in the Caribbean nor solely among the wealthy or corporations that take advantage of tax havens. Likewise, the problem cannot be completely blamed on their accomplices working in banks, law firms and auditing companies who push the law to its very limit – and often beyond.
No, the real scandal is to be found at the heart of Europe, where EU member states employ all manner of tricks to siphon off money from their neighbors. They don’t just use low tax rates; that is often the least significant problem. Rather, they employ loopholes that open the door to those who already have vast amounts of wealth of their own. Such behavior doesn’t just contradict the principles of solidarity, but also the very idea of the European social model.
It is time for a tax-refugee summit in the EU
Take the Netherlands, for instance. It is a place where foreign firms can artfully weave together several domestic companies and if all goes well, no tax is owed at all in the end. Or Malta: If you have an extra 650,000 euros, you can buy Maltese citizenship – along with all of the country’s tax benefits. Cyprus, another offshore hub, also offers EU citizenship to those with sufficient funds and allows them to hide their money from the taxman. The UK plays a questionable role as well, surrounded as it is by a multitude of tax havens that act as though they are independent but which, in fact, are not. The British Virgin Islands, the Cayman Islands and Bermuda are among 14 British Overseas Territories while the Channel Islands and the Isle of Man are Crown dependencies. The residents of all of those places have British passports and their head of state is Queen Elizabeth II – making it, perhaps, less than surprising that money belonging to the queen has also found its way into an investment fund based in Bermuda.
The EU, of course, has made an effort in recent years to combat tax evasion while the European Commission has targeted particularly egregious instances, such as the billions in discounts Ireland made available to Apple. Otherwise, the issue is merely delegated to European finance ministers instead of giving it the attention it deserves. It warrants the visibility of a major European refugee summit – one on tax refugees. Europe, after all, only has a future if its member states demonstrate solidarity, both in the acceptance of war refugees and on the rejection of tax havens within the bloc.