In Brexit Tug-of-War, EU Aims at City of London’s Tax-Haven Empire

But the EU keeps tripping over its own tax havens.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

The European Commission last year published its first ever tax-haven black list. On it was an eclectic mix of 17 far-flung jurisdictions including Panama, South Korea, the United Arab Emirates, Macao, Bahrain, Barbados, Namibia and Trinidad and Tobago, though eight of them, including Panama, have already been removed.

Conspicuously absent from the list were EU countries accused of facilitating tax avoidance, such as Luxembourg, Ireland, and the Netherlands. Also not included were British Overseas Territories or Crown Dependencies, despite being named in earlier EU lists and some being implicated in the Paradise Papers scandal. But that could be about to change.

According to a new report by The Independent, the screening process is set to restart in “early spring” for British territories including Anguilla, the British Virgin Islands and the Turks and Caicos Islands:

Other British territories – Bermuda, the Cayman Islands, Guernsey, the Isle of Man and Jersey – promised to try and address EU concerns to stay off the list, which will now be reviewed annually.

The Independent has been informed that as things stand it looks like Bermuda will be given a clean bill of health by the EU, but that outstanding questions remain for the Turks and Caicos Islands and Anguilla.

According to one recent study by Berkeley academic Gabriel Zucman, there is £1.4tn of “off shore wealth” located in the UK, Isle of Man, Jersey, Guernsey, Bermuda and Cayman Islands alone.

The City of London is not just a place where the infinite threads of global finance meet, it is also the center of a vast, secretive web of tax havens cast across the globe. The “City of London Corporation” itself has functioned for centuries as an offshore island inside Britain, even inside London, a tax haven in its own right. Each of the sprawling financial web’s sections – the individual havens in the Caribbean and elsewhere (all of them Crown dependencies) – trap passing money and business from nearby jurisdictions and feed them up to the City of London. This is arguably the central plank of its post-colonial business model.

But now that could be at risk. The timing of the EU’s threat to blacklist British tax havens is politically convenient, coming less than two months before crucial Brexit trade talks are scheduled to begin. According to spokespeople at the European Commission, decisions on which jurisdictions to blacklist are taken according to a strict and public criteria and are not subject to any political pressure or consideration in Brexit negotiations. But as The Independent points out, some officials privately acknowledge that the dynamic is shifting, with the EU seemingly willing to use the process as leverage and vowing to pursue the territories for revenue post-withdrawal.

A European Commission source said it was “significant” that none of the territories were mentioned in the joint EU-UK report setting out the phase one Brexit agreement last month. They went on: “The UK has always protected them in the past. That is not going to happen in future. We will go after them.”

The EU’s efforts to stamp out tax havens, in particular those connected to the City of London, would be laudable if it weren’t for the inconvenient little fact that three of the world’s 10 worst corporate tax havens identified by Oxfam are in the EU: The Netherlands (3rd), Ireland (6th) and Luxembourg (7th), most of whose tax-avoidance structures were put in place during EU Commission president Jean-Claude Juncker’s 18-year reign as Luxembourg’s prime minister.

In December the European Parliament agreed that none of these countries, or Malta, could be considered as tax havens. A Socialist group amendment identifying the four EU member states specifically by name was put to a vote but the proposal obtained 327 votes against, 327 in favor and 24 abstentions, which means it could not be adopted since there was no majority.

As such, according to the EU’s own lopsided criteria, the EU is not home to tax havens, despite the fact that the very text compiled by the parliament’s Committee of Inquiry into Money Laundering, Tax avoidance and Tax Evasion concedes that foreign direct investment in Malta amounts to “1,474% of the size of its economy,” while Luxembourg and the Netherlands combined have more inward investment than the US.

According to a team of researchers at the University of Amsterdam, the Netherlands is not just a corporate tax haven but one of the world’s largest, serving as a conduit for a staggering 23% of corporate investments that end in a tax haven. That compares with 14% for the UK, 6% for Switzerland, 2% for Singapore and 1% for Ireland. It is estimated that since 2005, nearly half a trillion dollars of U.S. corporate profits have been safely stashed in the Netherlands by household brands like Nike, Heinz, Caterpillar, General Electric, Time Warner and Foot Locker.

This inconvenient fact didn’t prevent the former deputy prime minister of the Netherlands, Lodewijk Asscher, from threatening a year ago to block any post Brexit trade deal if the UK doesn’t “firmly tackle” tax avoidance. The threat came just as the UK government announced that in the event of a hard Brexit, it was considering extending the City of London’s low-tax, light touch regulation regime to the rest of the UK.

But to what extent is the Netherlands itself tackling its own fiscal transgressions — the same transgressions that won it 3rd place in the Oxfam survey, just behind Bermuda and the Cayman Islands? The answer is likely to be “very little,” especially given that the EU doesn’t even consider the country to have transgressed.

Just as they — together with the UK — have done for years, the EU’s four non-tax havens will do everything they can to frustrate concerted EU action and protect their own tax regimes. And therein lies the crux of the EU’s crusade against the world’s tax havens: until it’s willing to get its own house in order, Brussels is in no position to preach to other countries, let alone police them. By Don Quijones.

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  14 comments for “In Brexit Tug-of-War, EU Aims at City of London’s Tax-Haven Empire

  1. Gershon
    Jan 17, 2018 at 2:34 pm

    How will Brexit impact Wall Street bankers’ ability to outsource their fraud to London, the global epicenter of financial fraud?

    • raxadian
      Jan 18, 2018 at 6:07 pm

      Have you read the article? London is nit the only tax Haven in the UK. They will just move to one of the others.

      What the EU seems to forget is that a gard Brecit would also screw up the EU economy.

  2. Cynic
    Jan 17, 2018 at 3:31 pm

    The EU is more and more like the Soviet Union: vast ethical pretensions, masking a sordid reality. Ah, the new ’empire of good.’

    With, of course, much better restaurants, shops, and scenery….

    PS Didn’t the kings of England know just what they were doing when they granted corporate rights to the City of London?!

    In the 17th century, the founder of Child’s bank told the famous diarist Samuel Pepys that politicians knew nothing, and should butt out and let the bankers run the show (in slightly more elegant language.)

  3. cdr
    Jan 17, 2018 at 4:14 pm

    “In Brexit Tug-of-War, EU Aims at City of London’s Tax-Haven Empire”

    Not being an expert, or even a fancier, or even slightly interested EU tax code, I’m only guessing here.

    London was/is an investment center because of lax rules that enable the quick buck financialization crowd to make out quite well. The EU floating suggestions that London as a tax haven will be no more unless the Brits pay out a lot or decide to stay is funny. The Brits have all the cards here. If they didn’t, this objection would have been front and center over a year ago. Taxes come and go. Slick rules that enable quick profits are golden. My guess is that is what will keep England front and center with respect to oligarch finance.

  4. Dave B.
    Jan 17, 2018 at 5:45 pm

    Rothschild stronghold is everywhere !

  5. d
    Jan 17, 2018 at 7:02 pm

    An excellent example of the hypocrisy of the Eu.

  6. MCH
    Jan 17, 2018 at 7:45 pm

    The world is full of inconvenient truths… Al Gore should be busy making films left and right and collecting Oscars. European Tax Havens: An Inconvenient Truth might sound really good if it wasn’t for the fact that it would be against Al’s conscience to make such a film.

  7. Naah
    Jan 18, 2018 at 10:55 am

    Leave the wealthy they need the help
    While we can’t pay the heating let them enjoy someone should.
    Hey Canada is the biggest tax haven ask trudeau

  8. Jan 18, 2018 at 12:22 pm

    Jim Rickards has said that the EU represents a global reach for tax revenue. I believe him, I think eliminating tax havens is a game of whack a mole, the solution is one uniform system which renders all the little adhoc tax shelters obsolete. Rickards is against a global tax system, but the faults in the current system argue for it. I would say we grant autonomy to robots and then tax the hell out of them.

    • d
      Jan 19, 2018 at 4:01 am

      The Eu cant even get to Fiscal union (Tax union).

      The US barely has true fiscal union, as it has federal and the different Regional /State taxes. And tax haven’s like Delaware.

      I agree and support the concept of 1 set of global Tax rules.

      LONG BEFORE THAT You have to have :

      1 set of global Labour standards. (not rates Just standards)

      1 set of Global environmental safety standards.

      1 set of global trade rules that EVERBODY plays by, and is bound by.

      When you have all that. what you have is a GLOBAl Administration.

      Russia and CCP china WILL NEVER sign on to a system, they cant game, or at least attempt to dominate.

      Before you even think about lunatic Armageddonist States like iran.

      Thanks to p 45 what was TPP a new global trade rule book (initially only applying to the TPP nations) cant even be got off the ground.

      NOW the Canadians are doing the bidding of the departed US, and playing lets delay, then destroy, this new rule book, before it even get’s started.

      And you want a Global Tax Regime which will equally 1 Global Government.

      With out Fiscal independence, there can be no independent Sovereignty, which is why the EU still cant get Fiscal Union, to happen.

  9. richarda
    Jan 18, 2018 at 5:00 pm

    The article gives you a far better idea of what Varoufakis was up against when Greece was trying to get hold of money held by ex-patriates and citizens elsewhere within the EU. I think it was Schauble that told him he was on his own.
    And at the same time Dijsselbloem (Netherlands) and Junker (luxembourg) were demanding austerity until morale (and taxes) improved.

  10. Cashboy
    Jan 19, 2018 at 2:34 pm

    London is the centre of money laundering in the world and the city of London relies on it. The UK government made out they were putting a halt to it but I believe had no intentions.
    In the UK, one can open a limited company with US$12 in 24 hours. A company bank account can be opened in 3 days. Transactions made and then subsequent closing of the bank account. Then striking off of the company for US$8 (or just leave it to be struck off by Companies House for free) by not filing accounts or the annual return statement.

    • d
      Jan 19, 2018 at 5:11 pm

      “In the UK, one can open a limited company with US$12 in 24 hours. A company bank account can be opened in 3 days.”

      In many other countries you can do all that in the same day, with NO verifiable ID required by the Companies office, or simply buy one off the shelf, already formed with a tax # and bank account for Under 500.00 US.

      The home of illegal money laundering is still Delaware, it has a much higher degree of privacy than London. And its all in US $ in the US. The Caribbean Islands are chicken feed compared to Delaware.

    • Kraig
      Jan 20, 2018 at 9:45 am

      Easier to open companies in Delaware or Wyoming than get a library card.
      USA still allows anonymous llcs

Comments are closed.