memorandum by Mr Dirk Van der Maelen, rapporteur for opinion
1. One of the three motions which
led to the report by the Committee on Social Affairs, Health and Sustainable
Development was tabled by me, on 27 April 2016, on “Panama Papers:
what lessons for the state of democracy in Council of Europe member
2. In early April 2016, the world was confronted with the Panama
Papers scandal: a leaked set of 11.5 million confidential documents
that provide detailed information about more than 214 000 offshore companies
listed by the Panamanian corporate service provider Mossack Fonseca,
including the identities of shareholders and directors of the companies.
The documents show how wealthy individuals, including public officials,
hid their assets from public scrutiny.
3. At the time of publication, the papers identified five heads
of State or government from Argentina, Iceland, Saudi Arabia, Ukraine,
and the United Arab Emirates, as well as government officials, close
relatives, and close associates of various heads of government of
more than 40 other countries. The Prime Minister of Iceland was
forced by demonstrators to resign over his involvement.
4. The Parliamentary Assembly held a current affairs debate on
“Panama papers” on 18 April 2016. It is obvious that it should continue
following the political consequences of this issue and, in particular,
its implications on the functioning of democratic institutions in
Council of Europe member States. We should learn from this scandal
and propose measures such as the open ownership of companies, sanctions
for un-co-operative tax havens and sanctions for the intermediaries
in the financial service sector including banks, lawyers and accountants.
Four years ago, in April 2012, I presented to the Assembly
a report on “Promoting an appropriate policy on tax havens”. In
its Resolution 1881 (2012),
the Assembly stated its concern “about the extent of
the offshore financial system, in particular tax havens, and its
impact on public finances, the stability of financial markets and
society at large”.
One year later, in my report on “The activities of the Organisation
for Economic Co-operation and Development (OECD) in 2012-2013”,
I pointed out that tax evasion and aggressive tax avoidance practices
of multinational companies were a threat to democratic institutions.
In its Resolution 1951
, the Assembly listed concrete measures to ensure tax
fairness by cracking down on aggressive tax evasion.
7. It welcomed “the OECD’s work on Base Erosion and Profit Shifting
(BEPS)”, urged “the OECD to continue to take a determined lead in
reforming international rules for the taxation of multinational
corporations so as to adequately reflect production and trading
practices in today’s global economy” and recognised “the importance
of governmental collaboration to co-ordinate tax systems and thereby
ensure that tax payers have confidence in them”.
8. More needs to be done, however, both to crack down on illegal
tax evasion and to promote far-reaching reforms of tax systems in
order to combat aggressive tax avoidance. Governments have a duty
to ensure that taxes are levied both fairly and efficiently. Much
of today’s tax legislation is based on an outdated vision of economic
activity dominated by fixed assets and with limited cross-border
exchange. A digital economy, based on intangible assets and rapid
cross-border transfers, requires radical new approaches to taxation.
The OECD, given its mission to develop rules supporting the efficient
operation of global markets, provides an appropriate forum for the
elaboration of new approaches. What is needed now is forceful new
thinking, backed by the determination to act.
9. I view this as a matter of extreme urgency. In Europe, leaked
documents and e-mails concerning funds allegedly hidden in secret
accounts in tax havens by politicians, business people and other
wealthy individuals have undermined confidence in democratic institutions.
Tax evasion and tax avoidance deprive European Union governments
of around one trillion euros in annual revenue, according to the
European Commission. This exceeds the total amount that European
Union member States spend on health care and it amounts to four
times the amount of money spent on education.
10. The issue is not just a matter of illegal tax evasion. It
also concerns fully legal practices that are used by multinational
companies to minimise their tax bills. In Great Britain, companies
like Amazon, Google and Starbucks have come under fire for accounting
arrangements that enable them to minimise legitimately the amount
of tax they pay to the United Kingdom Treasury, despite buoyant
sales on British soil.
11. Last August, the European Union ordered Ireland to collect
13 billion euros in unpaid taxes from Apple, a record penalty. In
the United States, Apple has been criticised in Congress for avoiding
taxes on tens of billions of dollars in revenue from its international
operations that were channelled through offshore entities. In other
countries, concerns are also growing that multinational corporations
are unfairly exploiting cross-border accounting opportunities to
maximise their profits by reducing the amount of taxes that they
12. At the same time, it is to be noted that tax avoidance cannot
just be blamed on the aggressive strategies of individual companies;
it is also the result of the tax policies of national governments,
including those designed to attract investment by foreign corporations.
13. In parallel, I believe that we should step up the fight against
the widespread illegal tax evasion that continues to be encouraged
by tax havens. In particular, we should support the OECD’s efforts
to press internationally for the implementation of arrangements
for automatic exchange of information for tax purposes in order
to combat illegal tax evasion.
14. In this respect, the OECD is working on the Standard for Automatic
Exchange of Financial Account Information in Tax Matters as an essential
step for effectively tackling evasion. Automatic exchange of information
can help to counter offshore non-compliance in a number of ways.
It can provide timely information in cases where tax has been evaded
either on an investment return or the underlying capital sum. It
can also help detect cases of non-compliance even where tax administrations
have had no previous indications of non-compliance. Finally, it
has a deterrent effect, increasing voluntary compliance and encouraging
taxpayers to report all relevant information.
15. The draft resolution states that “[t]he Assembly considers
that the fight against tax evasion and tax avoidance does not necessarily
require new legal or technical standards”. While it is correct to
state that effective implementation of existing legal and technical
standards is lacking, the Assembly should not give the message that
new legal or technical standards are not necessary or desirable
to improve the fight against tax evasion and tax avoidance.
16. Since 2009, tax transparency has improved greatly. This happened
in different steps, and after every step, it became clear that another
step was necessary. In 2009, bank secrecy was being abandoned by enforcing
exchange of financial information for tax purposes on demand. At
that time, the agreed international standard was “exchange of information
17. Until 2012 or even 2013, automatic exchange of information
(AEOI) was deemed undesirable. Since then, the consensus changed
and automatic exchange of information became the new international
standard, which led to the agreement on the OECD common reporting
standard. In the same way anti-money laundering standards have changed
over time and they will keep improving in the coming years.
18. Therefore, I would like to stress the importance of continuing
change, and propose in Amendment A that paragraph 5 of the draft
resolution reads as follows: “The Assembly considers that the fight
against tax evasion and tax avoidance requires new legal or technical
standards; what is urgent however is the effective implementation
of the existing ones. …”
19. Concerning the automatic exchange of information, member States
should not only be encouraged to join the OECD’s Global Forum on
Transparency and Exchange of Information for Tax Purposes, if they
have not yet done so, to ensure a rapid and effective implementation
of the Standard for Automatic Exchange of Financial Account Information
in Tax Matters, member States should also be encouraged to implement
AEOI on a multilateral basis and via multilateral agreements (Multilateral Competent Authority Agreement,
MCAA) instead of bilateral agreements, hence my proposed Amendment
20. Many countries are likely to opt out of the multilateral framework
(MCAA) and have expressed an interest instead in signing (or amending)
bilateral treaties as their way of implementing AEOI. The multilateral
approach saves time and resources for everyone and guarantees rapid
worldwide implementation and a level playing field for everyone.
Finally, the AEOI project lacks sanctions for recalcitrant jurisdictions.
21. Although many developing countries will not be able to join
the Common Reporting Standard (CRS) any time soon, the Parliamentary
Assembly should propose that financial centres publish aggregated
AEOI statistics. That would at least let everyone know where their
money is being hidden, without compromising any confidentiality.
Until developing countries participate actively in the AEOI project,
all participating countries should start exchanging some information
spontaneously with these countries, at least regarding high value accounts.
22. An important loophole in the CRS is the lack of measures to
tackle sham residency certificates. The CRS is based on determining
the residence of each account holder so that the account information
will be sent to their corresponding country. However, any account
holder can avoid reporting (to its real country of residence) by
pretending to be a resident of a tax haven which sells residency
certificates. Some jurisdictions already issue a certificate of
residence in exchange for money. The Assembly should recommend that
member States ensure that a blacklist of “residence-for-sale” jurisdictions
be created by the OECD.
23. Concerning the recommendation on tax systems, the Assembly
should recommend not only sound, transparent and stable national
tax systems, but fair tax systems as well, hence my proposed Amendment
24. Concerning the recommendation on setting up a central register
of ultimate beneficial owners (UBO), the Assembly should stress
the importance that these registers are publicly accessible, hence
my proposed Amendment D.
To complement the recommendations mentioned in the draft resolution,
I am convinced that the following recommendations should be added
(as proposed in Amendments E, F and G):
- develop stronger sanctions for banks, and legal entities
that assist in tax fraud, these could include the temporary suspension
or lifting of operating licenses as well as the freezing of accounts
- make the OECD Base Erosion Profit Shifting (BEPS) Guidelines
on tax challenges and tax standards, that have already been agreed
by OECD countries and the G20, the new Global norm;
- encourage the OECD, together with the Council of Europe,
to review their joint Convention on Mutual Administrative Assistance
in Tax Matters with the aim of facilitating the creation of an international
tax co-ordinating body under the auspices of the OECD, capable of
imposing sanctions. In this respect, I should like to welcome the
recent ratification by Switzerland of this convention.