By David Pegg
The European parliament has voted to launch an inquiry into financial crime, tax evasion and tax avoidance, saying the Paradise Papers had revealed the “unfinished work” needed to secure fair taxation.
A special committee of 45 MEPs, provisionally entitled Taxe 3 in its terms of reference, will spend a year investigating issues including those raised in the leak of data from the offshore law firm Appleby.
A key focus for the inquiry will be the use of offshore tax havens to save on VAT. The leak exposed how the Isle of Man had issued £790m in VAT refunds to the owners of 231 private jets.
The Taxe 3 inquiry marks a further threat from the EU to the UK’s network of offshore tax havens following the EU referendum. The terms of reference specifically promise that “particular attention shall be given to the crown dependencies and overseas territories”.
The committee could also investigate the UK’s “non-dom” loophole, which allows wealthy individuals to avoid tax by claiming that their true home is outside the UK. The terms of reference say it will “assess national schemes providing tax privileges for new residents or foreign income”.
Tax advantages involved in the sale of residency or citizenship in so-called “golden visa” schemes are also identified as a particular focus in the terms of reference. The impact of tax avoidance and evasion on the digital economy will also be assessed.
“The Paradise Papers showed that there is clearly unfinished work to do if we are to secure tax justice in Europe,” said Philippe Lamberts, the co-president of the Greens–European Free Alliance political group, which lobbied for the committee. “We want to make sure that national treasuries are able to collect the money that is needed to build shared prosperity across Europe.”
The inquiry will need to be approved by a plenary vote. However, because it has already been approved by the conference of presidents, which represents the various political groups in the European parliament, this is likely to be a formality.
The Taxe 3 committee will follow up the work of the Pana committee, which was set up to investigate money laundering and tax evasion in the aftermath of the Panama Papers, and which reported in December.
“The pressure of the parliament for tax justice in Europe will be intensified,” said Sven Giegold, a German MEP who also participated in the Pana committee. He said the parliament would “investigate for the first time tax privileges for new residents or foreign income such as citizenship programmes or non-dom regimes”, adding: “Such distorting privileges are offered by Portugal, Italy, Malta, the United Kingdom and Cyprus.”
Last year the Guardian reported how EU member states, including Cyprus and Portugal, had raised billions of euros by selling citizenship and residency, in some cases to foreign politically exposed persons.
Giegold also said it was unacceptable that an EU blacklist of tax havens launched at the end of last year had failed to include “the most important places in the world of shadow finance”.
“In the context of Brexit, the committee will give particular attention to the British crown dependencies and overseas territories,” he said.
Udo Bullmann, the acting director of the Socialists and Democrats group, which pushed for the new inquiry, said it was “paramount” to maintain pressure on EU governments to build a fairer tax system. “It is crucial to complete the work carried out in the successive committees, Taxe 1, Taxe 2 and the Panama Papers inquiry that were launched four years ago. The work to crack down on tax dodging must continue,” he said.
Aurore Chardonnet, a policy adviser on tax and inequality at Oxfam, applauded the establishment of the inquiry. “With this new committee on tax issues, the European parliament has again proved its willingness to tackle tax avoidance and push EU countries to adopt and implement the reforms needed to avoid an umpteenth tax scandal,” she said.Separately, the UK Treasury has said a “review” examining the Isle of Man’s VAT treatment of private jets should be completed within the next few months. “HM Treasury is currently carrying out its review into the Isle of Man’s administration of VAT in relation to aircraft and yachts. HM Treasury aims to complete the review in spring 2018,” said the financial secretary to the Treasury, Mel Stride.