Helping developing countries in the fight against tax evasion and tax avoidance

What the Panama Papers tell us and what we need to do

The Panama Papers shed light on the immoral, unethical and simply unacceptable ways through which rich individuals mask their wealth offshore, triggering political reactions all over the world. Financial secrecy and tax evasion are not just an EU problem: the leak clearly displayed the consequences of tax avoidance and evasion on developing countries showing how multinational companies shift profits to their subsidiaries head-quartered in tax heavens around the world.

ONE estimates that at least 1 trillion USD is taken out of developing countries each year through a web of corrupt activity involving opaque deals for natural resources, the use of anonymous shell companies, money laundering and illegal tax evasion. Low tax revenues means that governments struggle to fund the most basic services (universal access to healthcare or education, infrastructure and a social safety net), and the huge amount of money lost every year is seriously harming our development policies and challenging the achievement of the ambitious 2030 Agenda agreed last year. In order to be able to finance their share of the Sustainable Development Goals, developing countries will have to increase tax revenue collection. How to do it?

S&D MEP Elly Schlein at Panama Papers inquiry committee meeting

First, ensuring fair taxation. Last year the Parliament approved an own-initiative report on ‘tax evasion and tax avoidance as challenges for governance, social protection and development in developing countries’, where we proposed an Action Plan to develop an external strategy to fight tax evasion and tax avoidance. Among other actions, we called on the EU to support and give assistance to the national tax administrations of developing countries, and we stressed that, when negotiating tax treaties, a fair distribution of taxing rights should be ensured.

Most importantly, ahead of the Addis Ababa Conference on Financing for Development, we pushed for the transformation of the UN taxation committee into a genuine UN intergovernmental body, ensuring that developing countries can participate equally in the global reform of existing international tax rules. Currently, at the OECD, a small group of rich countries get together in a closed room and decide on new global tax rules. But the Panama Papers demonstrate once again that global problems need global solutions, and that we need a transparent, universal and neutral institution to deal with it.

Pierre Moscovici, European Commission for Economic and Financial Affairs, Taxation and Customs, during a Panama Papers inquiry hearing

The Commission has taken already some steps in the right direction, but we should be bolder and more effective actions are needed: transparency in particular is a game-changer in the fight against tax avoidance and evasion. We need full transparency on the beneficial ownership of firms and trusts also in developing countries, and Automatic Exchange of Information (AEI) with fiscal authorities of these countries is essential, also taking into account their particular situation and needs, while developing the capacities to collect and manage the data.

Only a full Country-by-Country Reporting (CbCR) could be of use outside Europe and would stop multinationals exploiting the secrecy afforded to them in other parts of the world. Under the current Commission proposal multinational companies will not need to disclose data on a disaggregated basis outside Europe, making the instrument completely useless for our developing partners.

Only with a strong commitment to fair taxation and coherent EU policies will it be possible to continue our fight against poverty and inequality.

The Panama papers made the Commission’s mandate clearer than ever, and public pressure can be a game-changer. The S&D Group in the PANA committee will continue to focus on the impact of our taxation policies on developing countries: only with a strong commitment to fair taxation and coherent EU policies will it be possible to continue our fight against poverty and inequality.