Tax haven crackdown as report identifies 170 billion euros loss

tax haven crackdown

10th February 2020

Over the last few years, global authorities have been driving compliance crackdowns to punish fraudulent behaviour. While this has been a worldwide trend, one particularly active body has been the EU. Whether acting through its member states, or with its blacklist, the bloc has forced many countries to toughen up on tax.

In fact, in May 2019, we covered news that the EU had removed three longstanding tax havens from its blacklist for enacting required reforms. However, non-compliance is still having a large impact across the region – with a new report estimating that the EU loses €170 billion a year due to tax evasion. So, what do recruiters need to know about the tax haven crackdown?

Tax haven crackdown

According to a Polish state think-tank report due to be discussed at the World Economic Forum in Davos, European Union member states lose €170 billion euros a year due to tax evasion. The information collated by the Polish Economic Institute, proposed that the European Commission should have powers to enact a tax haven crackdown and sanction countries that benefit from ‘artificial profit-shifting’ by companies.

‘Losses resulting from the use of international transactions for tax fraud and tax avoidance reduce EU Member State revenues by around 170 billion euros annually’ said Piotr Arak, the director of the Polish Economic Institute. ‘The Union should take measures to seal the tax system in order to have an additional source of financing for the new budget, which will be constructed without the United Kingdom, a major payer.’

The report will be discussed in Davos, with speakers including Polish Prime Minister, Mateusz Morawiecki, and French Finance Minister Bruno Le Maire, a key figure in the global tax crackdown. The broader issue of tax has been high on the agenda at Davos, with a battle brewing between the United States and Europe over how the world’s biggest technology firms are taxed.

Out of the 170 billion euros that the EU loses every year, 60 billion euros comes from artificial profit-shifting by multinational companies – moving earnings from a high tax jurisdiction to a country with a lower tax rate – 46 billion euros due to moving wealth by rich individuals, and 64 billion euros due to cross-border VAT fraud.

The countries worst-hit by losses due to artificial profit shifting were: Germany (18 billion euros), Britain (14 billion), and France (11 billion). ‘Some EU Member States benefit from the artificial profit shifting process and should be called EU tax havens’ the report added. ‘These are: the Netherlands, Ireland, Belgium, Luxemburg, Malta and Cyprus.’

Recruiters need to be aware

Despite the vast EU losses, there have been strong measures taken to crackdown on non-compliance, even in countries notorious for being tax havens. For instance, last year, Swiss tax authorities offered an amnesty where citizens could report untaxed assets from back to 2010 without any repercussions, recovering $44.5 billion in lost funds. Ireland has also recently introduced data analytics to help track down evaders, appointing a Chief Analytics Officer to implement the mining of taxpayer data.  Even Panama, perhaps the most well-known tax haven, has passed a bill that will elevate tax evasion to a criminal offence for the first time in its history.

Therefore, any recruiters looking to place contractors in Europe will need to be aware that these countries are no longer a ‘soft touch’. Agencies will need ensure that they are not unwittingly breaching the law when doing business in these regions, as liability for the compliance of contractors can, in some cases, reach all the way back to your agency. Unfortunately, with the raft of international standards and legislation being introduced, remaining compliant is not easy. For this reason, we recommend seeking help from international experts.

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