Slide: 1 European Commission – Directorate-General Taxation and Customs Union Tax havens and tax competition EU policies towards tax havens and tax competition Matthias MORS DG Taxation and Customs Union

Slide: 2 European Commission – Directorate-General Taxation and Customs Union The general framework lThe European Union has no policy specific towards “tax havens”, but pursues a general policy on tax competition and good governance lEU Member States are free to adopt their policies towards “tax havens” provided they respect Community law (in particular the “fundamental freedoms” enshrined in the EC-Treaty) lEU policy focuses on mestablishing certain (minimum) ground rules with respect to tax evasion and tax avoidance within the EU; mtrying to avoid that jurisdictions outside the EU undermine these intra-EU efforts;

Slide: 3 European Commission – Directorate-General Taxation and Customs Union EU policy framework lAny country/jurisdiction is free to set its (general) tax rates in the field of direct taxation even if this implies low or zero taxation lCertain types of preferential tax regimes are considered to be “harmful” and should therefore not be used lEach country should be in the position to properly enforce its tax rules (particularly relevant for residence taxation), thus requiring the cooperation of other countries

Slide: 4 European Commission – Directorate-General Taxation and Customs Union The fight against tax avoidance and evasion lKey problem: mlack of transparency and lack of cooperation/exchange of information (key concerns: individuals, but also transfer pricing and corporate malpractice like Parmalat, Enron, etc.) lEU objectives: m Bilateral exchange of information (on request, spontaneously or automatically, e.g. as in the case of savings income) m Mutual assistance lIntra-EU instruments: m Mutual Assistance Directive and Directive on Mutual Assistance in Recovery m Directive on the taxation of savings income (of private individuals)

Slide: 5 European Commission – Directorate-General Taxation and Customs Union The fight against tax avoidance lKey problem: m Harmful tax practices using preferential regimes (business taxation) lEU objectives: m Prevent significant losses of (notably corporate) tax revenue lEU instrument: m The Code of Conduct on business taxation (political commitment; main criteria: ring-fencing; absence of economic substance; deviation from international principles; lack of transparency) m [PM: some overlap with EC Treaty rules on State aid (main criteria: selectivity; granting an economic advantage through State resources; affecting trade)]

Slide: 6 European Commission – Directorate-General Taxation and Customs Union EU policy towards third countries/ jurisdictions lRespect for the sovereignty of countries/jurisdictions to decide on the tax system for their citizens/residents lGood governance in the tax field part of a broader approach to good governance (fight against fraud, corruption, money laundering, financing of terrorism etc.) lTo the largest extent possible, EU policies should be compatible with, and supportive to, OECD work on harmful tax practices lEU policies to complement Member State policies and to set a framework to be used by Member States lSo far little appetite for “co-ordinated defensive measures”

Slide: 7 European Commission – Directorate-General Taxation and Customs Union EU policy towards third countries/ jurisdictions l“Give and take” approach more likely to be successful: “Give”: mWhere appropriate, the EU is willing to provide technical assistance, financial assistance for economic adjustment or trade facilitation/access to the EU market“Take”: mThe EU expects third countries to respect internationally recognised standards of good governance in the field of taxation: transparency and exchange of information (on request) mThe EU and its Member States are committed to promoting the adoption of the principles of the Code of Conduct in third countries (Paragraph M of the Code)

Slide: 8 European Commission – Directorate-General Taxation and Customs Union EU external policy instruments lEuropean Development Fund (EDF) mVolume: 22.6 bill.€ for the period mGeographical scope: 77 African, Caribbean and Pacific countries (ACP) and 20 Overseas Territories (OCT) mProgramming on the basis of partnership approach and “demand” expressed by the beneficiaries mNewly introduced “incentive allocation” related to government commitments (“additional money”); lEconomic Partnership Agreements (EPAs) mGeographical scope: 6 regions of ACP countries mFollow-up to Cotonou-Agreement: market access at stake

Slide: 9 European Commission – Directorate-General Taxation and Customs Union EU external policy instruments (cont.) lPartnership and Cooperation Agreements (PCAs) linked to Free Trade Agreements (FTAs) lAssociation Agreements lEuropean Neighbourhood Policy (ENP) lSavings Agreements (bilateral and multilateral) mVarious agreements with Switzerland, Liechtenstein, Monaco, San Marino, Andorra, Overseas Countries and Territories (OCTs), etc. mFrequently benefits accorded in terms of market access, free movement, etc.

Slide: 10 European Commission – Directorate-General Taxation and Customs Union Challenges encountered lLimited political awareness mNo systematic quantitative data on “revenue leakage” mCitizens not conscious of the problem lInternational standards in the tax field less firmly established than in other areas mFor example, no international convention like in the case of corruption lEU tax policy decisions have to be taken unanimously mSome EU Member States have economic interests that are to some extent similar to those of “tax havens”

Slide: 11 European Commission – Directorate-General Taxation and Customs Union Challenges and perspectives lDistinction between (acceptable) general tax competition and (harmful) preferential regimes not always economically straightforward and sometimes difficult to maintain lSometimes debate about “Community competence” versus “Member State competence” lLong lead times for negotiating new or adapting existing agreements lOnly at the beginning of an internationally co- ordinated, integrated policy for promoting “good governance” in the tax, financial and judicial field