This week has seen another revelation about one of the world’s lesser known tax havens. After the big(ger) leaks from Switzerland, Luxembourg, Panama and the Bahamas over the past years, a small island in the Atlantic ocean is in the limelight this time: Portugal’s own offshore paradise Madeira.
German broadcaster Bayrischer Rundfunk (BR) has done the bulk of the work and meticulously crafted a database of the island’s company register – information that had been technically available online but not in any usable format, so far. It has subsequently been shared with Spanish, French and Austrian colleagues for joint reporting.
A haven’s usual business…
Unsurprisingly, what the journalists found looks familiar to the characteristics of other offshore havens previously in the public spotlight. Hundreds of firms registered at the same address without any visible physical presence and hundreds of such letterbox companies run by the same directors, often provided to wealthy clients by law firms enabling the offshore business as a ready-made package together with the letterboxes. Also a sizable portion of the companies itself is owned by other firms that are resident in notorious secrecy havens such as Panama or the British Virgin Islands. The offshore world works like a web where things are linked and layered to provide perfect anonymity.
Interestingly, the Madeira database also exhibits several links to the most recent major offshore revelation Football Leaks. Javier Mascherano from Barcelona or Xabi Alonso from Bayern Munich are only two of the prominent players which channeled income to Madeira in order to benefit from its generous tax regime. The offshore dealings of football players are obviously just one of many examples in a system where the richest parts of society systematically shirk obligations that the vast majority of people comply with.
Our GUE/NGL group has already made a substantiated call for the European Parliament to investigate this sector in its on-going committee of inquiry given the ample evidence now on the table. A hearing on the matter is currently foreseen for September 2017 following a recent decision, in principle, to request a six months extension as a consequence of continuous obstruction of the committee’s work by EU Member States.
…rubber-stamped by the EU
What is striking about the Madeira case – the history and details of which have been neatly summarised by Portuguese MEP Ana Gomes – is that it has neither evolved outside the European Union’s jurisdictions (like one could argue for Panama, even if a large part of the cases exposed in the Panama Papers is somehow connected to territories under EU control) nor that its main features are secretive (like the now infamous Luxembourg rulings, aka sweetheart deals). Pretty much to the contrary, Madeira’s 0% tax regime has been formally approved by the European Commission: first in 1987 after Portugal’s accession to the bloc and subsequently again in 2002, 2007, 2013, 2014 and 2015, with effects until 2027.
The Commission did however explicitly insist in 1987 that Madeira not use the privileged regime – granted as exceptional aid because of Madeira’s location as outermost region – to establish an “offshore financial centre”. A conditionality that rings hollow given this week’s revelations, which did not come as a surprise for long-standing critics of the tax giveaways inside Portugal. Besides a slight increase of the rate from 0% to 5% as late as 2013, there was actually not much change over the years. Tellingly, this increase was already too much to ask for some of the biggest multinationals in the data set. US oil giant Chevron, its Italian competitor Eni or the drink producer Pepsi all closed down letterboxes on the island at that time.
Tax haven blacklist as fig leave
Not just did the European Commission approve Madeira’s regime from the point of view of European state aid rules. The topic of special economic zones (SEZ), notably Madeira, has also been under discussion for years in the secretive Code of Conduct Group on business taxation in the Council of the European Union. This is where Member States meet since 1998 to combat harmful practices of corporate taxation but which has been rendered entirely ineffective by a lack of political will and transparency. The discussion on guidelines for SEZ has been dormant since 2008.
Currently under discussion in the same group is the EU’s much taunted blacklist against tax havens. We have previously discussed the limitations of this project at the occasion of Commissioner Moscovici’s hearing at the PANA committee. The final episode of the preparatory work for this list is set to take place next week at the 21 February ECOFIN summit. After this, screening of more than 90 jurisdictions globally will finally commence. Excluded per definition are, however, all territories within the EU. This covers the bigger tax havens like Malta and Luxembourg, but obviously also places like Madeira. The same principle obviously also applies to the separate blacklist for jurisdictions with insufficient anti-money laundering practices.
Hence, for as long as Member State governments keep protecting offshore paradises en masse within their own borders, talk about cracking down on money laundering, tax evasion and tax avoidance really seems like not much more than that: empty talk. The constant flow of leaks and the analysis of these scandals are necessary to draw public attention and expose the hypocrisy of our elites. Fundamental change will, however, require a longer breath and people standing up to the theft by the rich and powerful they are continuously being made to pay the bill for in the form of austerity budgets and deteriorating public services.
— source guengl-panamapapers.eu