EU Tax Haven Blacklist Is Discriminatory

June 19, 2015 1:15 PM

Earlier this month, the EU Commission published a list of 30 small countries that it describes as noncooperative jurisdictions on tax matters. The list is designed to tar-and-feather these countries, reduce their access to international development funds, and so pressure them into abandoning their international financial centers. It is an act of gross discriminatory bullying that will become the modern definition of colonialism.

The Netherlands, Ireland, and Luxembourg are under investigation by the EU Competition authorities for facilitating aggressive tax avoidance that formed the basis of their own international financial centers. These investigations followed the leaking of documents to journalists that showed Luxembourg had entered into 548 private tax rulings between 2009 and 2013 to allow 340 of the largest companies in the world to avoid paying taxes in EU countries. The companies included Pepsi, Amazon, Walt Disney, Procter & Gamble, IKEA, Heinz, Deutsche Bank, and J.P. Morgan. Yet Luxembourg, Ireland, and the Netherlands are not on the European Union's list. Instead of tarring and feathering the countries representing the greatest source of tax losses to the European Union, they have chosen to be judge and jury over 30 small countries, powerless to defend themselves against wrongful accusations.

The mix of countries that have tax minimizing regimes is not differentiated by large or small, rich or poor, black or white. But the EU list is. This kind of discriminatory bullying will serve to undermine international efforts to establish a level playing field on tax matters. Why should countries sign the Organization for Economic Cooperation and Development's Convention on Mutual Administrative Assistance in Tax Matters, as many of the targeted countries have, if they still get tarred without any due process based around evidence, nondiscrimination, and other aspects of natural justice? Such discrimination also fosters the very tax avoidance the European Union claims to be trying to stop. Recall that the activities of Luxembourg, Ireland, and Netherlands were common knowledge for decades, but the European Union was only compelled to investigate after the public outcry that followed press reports. Blatant discrimination doesn't reduce tax avoidance; it shifts it. When Apple, Google, and Starbucks want to avoid EU tax, they know where to go.

The European Union's actions would make former FIFA vice president Jack Warner blush: be thick in the middle of hundreds of deals avoiding billions of taxes, then accuse Niue, a Pacific island state with a GDP of $10 million, as a major threat to the tax receipts of European governments. Jean-Claude Juncker, president of the EU Commission, was prime minister of Luxembourg when the tax deals were being developed. He has adopted the Warner defense: "I have nothing to reproach myself more than others would have to reproach themselves." Incidentally, FIFA, under investigation for corruption and bribery, is headquartered in Switzerland, another country that does not appear on the EU list. The European Union is saying that Swiss activities are far less a threat to EU tax revenues than those that take place in Niue, Montserrat, Liberia, Vanuatu, St. Vincent, St. Kitts, and the Cook Islands.