Vive la revolutión… fiscal!

This article was first published in the Guest Blog of TaxJustice.net on December 12, 2017

Miguel Urbán Crespo, Member of the European Parliament, PODEMOS has produced this guest blog, translated by Luke Stobard which we’re pleased to share:

In his famous work ‘The Ancien Régime and the Revolution’ Alexis Tocqueville held that the French revolution did not really begin in 1789 but two years earlier when the aristocracy refused to pay taxes in the “revolt of the privileged”. The event forced Louis XVI to convene the Estates-General and ally himself with the Third Estate (commoners) to end the aristocracy’s privileges. On 19 June 1790 all hereditary titles of nobility were abolished and associated tax exemptions deemed a “national offence”.

Little over two hundred years later, the global economic elites have become a new aristocracy that feels it has the right not to pay taxes. One leak after another we are discovering new names of multinationals, billionaires, famous people or politicians who use offshore or ‘front’ companies to keep their true assets in tax havens or hideouts and thereby avoid duties. Tax evasion and avoidance by corporations and the very wealthy are central reasons behind the dizzying growth in global inequality and states’ increasingly scant tax revenues. To give an idea of scale of the problem, at the European Parliament’s Committee of Inquiry into the ‘Panama Papers’ we have calculated that the EU loses a trillion euros a year in revenue from evasion and avoidance, an amount almost equivalent to the GDP of Spain.

We have seen in these years of acute crisis that while the European institutions demand sacrifices from the people, restrict rights and introduce authoritarian measures to “overcome” the crisis, the rich – thanks to a global web of tax havens – have accelerated a process of concentrating power and wealth. Since the beginning of the crisis, world inequality has not stopped rising – (as shown by an Oxfam-Intermón report) reaching the extreme that the richest 1 per cent of the world’s population own more wealth than the other 99 per cent. This is most serious crisis in social inequality since data became available.

But it has been the media and public scandal resulting from leaks of documents such as the ‘Falciani list’, ‘Panama Papers’, ‘Paradise Papers’ and in the case of ‘LuxLeaks’ that have compelled the European authorities to stage a struggle against tax evasion. Such was the context in which the Parliament’s Committee of Inquiry into the Panama Papers was formed to provide additional concrete information on a phenomenon that – sadly – is not transitory but structural and stemming from the foundations of today’s liquid capitalism.

The Committee has had restricted access – and time to study – the full documents because several member states, the Council and the Commission have not cooperated with its work as they should. Also the Committee of Inquiry has had little power to ensure the participation of people or organisations contacted to provide declarations. Moreover, conservative forces have tried to ensure that many of the hearings would be a whitewash for institutions, countries and individuals, rather than be tasks in a genuine inquiry. Liberals and conservatives even blocked our group’s proposal to call on corporations such as Nike to declare. Months later the same companies appeared in the Paradise Papers leaks. Yet despite all of the Committee’s limitations, as well its balancing acts and excessive prudence, it is providing a series of findings and recommendations of interest.

Indeed the Panama Papers inquiry report – passed by the Committee of Inquiry – goes as far as suggesting that within the EU framework harmful dynamics of tax competitiveness are at play. In these the free movement of capital produces unwanted effects and thus should be regulated – at least to limit its effects through harmful transfer pricing. The report proposes ending “double-taxation avoidance agreements”.

Many of the Committee’s “achievements” are at risk due to amendments by Liberals and Conservatives that respond exactly to the interests of the lobbies and shall be voted on this week in the Strasbourg parliamentary plenary. In this regard they aim to eliminate from the final text’s recommendations introducing tax deductions at source for transfers of interest or dividends – to avoid transfer pricing in which profits appear in third countries with favourable tax arrangements. They also want to eliminate the recommendation of drawing up a list of “non-cooperative” tax jurisdictions – including those with low or almost-zero tax rates (which include EU countries) which should be subject to penalties that are proportionate but should act as a deterrent.

Likewise they aim to eliminate references in the Committee’s text to introducing a minimum Europe-wide tax rate applied  to interest and royalties (at least), and which could aim to become a minimum rate for a future European corporation tax. Such a step could favour developing a bill of law on how transnationals’ headquarters and groups are identified to prevent abuses in EU-wide transfer pricing.

Lastly there is an attempt to weaken proposals on regulating tax intermediaries by means of incentives, controls and penalties. Such measures would force intermediaries – enablers and developers – who do business from “tax optimisation” to act in the public interest without hiding behind professional secrecy. They would even allow the possibility of withdrawing operating licenses.

When the French revolution made Louis XVI do away with the hereditary rights of nobles, mortally wounding the old regime, it needed immediately to create a property registry to carry out collecting taxes. Today it is crucial that we develop a public registry of real beneficiaries that is synchronised with the property records used by the tax authorities. This would enable ensuring a fair and progressive taxation system as an effective tool to distribute wealth, ending some of the privileges of the new planetary “aristocracy” which believes it is exempt from paying taxes. To achieve such change it might not be enough to have a Committee or book of complaints, but rather to live a revolution again!