euractiv.com — Germany’s secretive financial sector is second only to Luxembourg in its vulnerability to money laundering, and is one of the worst member states for tax dodging, according to an analysis of EU nations published a year after the Luxleaks scandal.
Most of the 15 countries scrutinised were failing to tackle tax evasion and avoidance, the report coordinated by the European Network on Debt and Development (Eurodad) said, with “ample opportunities” for multinationals and wealthy individuals to hide money.
“Some of the most troubling countries are still Luxembourg and Germany, which offer a diverse set of options for concealing ownership and laundering money,” the network of 48 NGOs, including Oxfam and Christian Aid, said.
Money laundering is turning the proceeds of crime into ostensibly legal money or assets, and has been linked to international terrorism. The Luxleaks scandal pushed corporate tax avoidance, which is technically legal, and tax evasion, which is illegal, up the political agenda.
On 5 November 2014, an International Consortium of Investigative Journalists exposé revealed that Luxembourg gave sweetheart tax deals to multinationals, when European Commission President Jean-Claude Juncker was the country’s premier, and finance minister.
22 of the EU’s member states use tax rulings to make deals with corporations, the report, 50 Shades of Tax Dodging, said. “With provision for tax rates lower than 1% in some cases [..] such tax rulings have now become a key tool in corporate tax avoidance,” it added.
The European Commission has launched state aid investigations against several member states, including Luxembourg, over their tax deals with companies.Tove Ryding, coordinator of Tax Justice at Eurodad, said, “The citizens of Europe have now waited a year for the EU to get its act together and put an end to a system that allowed hundreds of multinational corporations to dodge taxes.
“Instead, although a few loopholes have been closed, new ones have also appeared. It’s clear that in the EU it is business as usual for multinational corporations who want to dodge the rules to lower their tax bills.”
Secrecy and money laundering
Luxembourg was criticised in the report for making it even more difficult to identify the real owners of companies and assets by introducing new financial structures.
On a scale based on the Basel Institute of Governance’s Anti-Money Laundering Index 2015, Luxembourg was given 5.9 out of ten. Germany scored 5.5, higher than the EU average of 4.4.
Italy, Spain and the Netherlands, France and the United Kingdom follow close behind on the list.
The EU’s Money Laundering Directive regulates issues such as public access to information about the beneficial owners of companies and trusts. The fourth revisions to the law is being implemented at national level.
Germany under spotlight
Germany opposed the establishment of centralised registers of beneficial owners and public access to the information, according to the report.
Recent banking scandals in Germany have highlighted the role of the sector in hiding the real owners of companies and facilitating money laundering.
In February 2015, agents raided Commerzbank – the country’s second largest bank – in an investigation over allegations the bank helped clients evade tax through Luxembourg.
Other probes into at least three more banks are ongoing. One bank reportedly settled for €22 million with German regulators over their role is setting up shell companies in Luxembourg to hide funds.
In July 2015, Hypovereinbank paid a €20 million fine and agreed to help tax authorities with further investigations over a structure set up by several banks, including Deutsche Bank.
Luxleaks
More than 300 companies, including PepsiCo Inc, AIG Inc and Deutsche Bank AG, secured secret deals from Luxembourg to slash their tax bills, the International Consortium of Investigative Journalists (ICIJ) reported on 5 November 2014, quoting leaked documents.
The companies appear to have channeled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes, the group of investigative journalists said, based on a review of nearly 28,000 pages of confidential documents.
Luxembourg has faced international criticism following the revelations. The leaks put pressure on European Commission President Jean-Claude Juncker, a prime minister of Luxembourg, to explain his role in the country’s tax policies.
Juncker has defended the country’s tax practices, but is now promoting a plan for a common EU system to share tax information.
• In November and December 2014, the LuxLeaksdossier exposed tax rulings with hundreds ofmultinational companies in Luxembourg.• In February 2015, SwissLeaks laid bare the financialinformation of more than 100,000 bank clients in aSwiss bank.• In February 2015, McDonald’s came under thespotlight when a report was released on the fastfood giant’s tax payments. Among other things, thereport showed that McDonald’s reported a turnoverof more than €3.7 billion in one subsidiary with 13employees in Luxembourg from 2009–13, leading totax payments of only €16 million.• In June 2015, Walmart hit the news when a reportdetailed the company’s tax practices. The reportpointed out that Walmart has subsidiaries in Ireland,the Netherlands, Luxembourg, Spain, Cyprus andSwitzerland, despite not having any stores there.The report details some of the tax saving effectsachieved through these European subsidiaries.• Meanwhile, two separate studies on the miningindustry published in 2015 showed that theNetherlands had been used to minimise taxpayments in Malawi and Greece.
