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22 May 2013

EP President Schulz: Speech to the European Council


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In his speech, Schulz addressed the issues of unemployment and tax fraud/evasion, and spoke briefly about the reform of Economic and Monetary Union.


Tax havens, letter-box firms, offshore accounts, CDs full of information about tax dodgers, illegal funds and shady front men – the details which the ‘offshore leak’ documents have brought to light read like the summary of the plot of a detective novel. ‘This money hidden from the taxman is the great black hole in the world economy’, as Heribert Prantl, a journalist with a leading German daily newspaper, put it so aptly. Day after day, international firms and private individuals are cheating society of billions. According to reliable estimates, every year the EU loses revenue totalling a breathtaking €1 trillion as a result of tax fraud and tax evasion. That’s €2,000 per year for every EU citizen, four times as much as per capita EU spending on education.

Tax evasion is not a trivial offence. Tax evasion is a serious crime, one which, thanks to protracted legal proceedings and trifling penalties, can be committed virtually with impunity, but one which causes serious damage to society. That damage takes a number of forms. Firstly, the €1 trillion I referred to a moment ago never finds its way into national budgets, adding to national budget deficits. If all taxes due could be collected, within a decade the national debt of European countries could be wiped out. Enough money is available, therefore, to pay off the mountains of debt weighing down our economy, to invest in growth and to pay for youth job guarantees – if we could just collect all taxes due.

Secondly, much of this money which is hidden from the taxman is used to fund speculation, increasing financial market liquidity and helping to create dangerous bubbles.

Thirdly, tax fraud undermines solidarity within States and among peoples. Please allow me, Prime Minister Samaras, to use your country as an example of this problem. In recent years, ordinary Greeks have been forced to accept painful sacrifices in the form of wage reductions or benefit cuts, and the citizens of other EU countries have been supporting Greece by making their taxes available in the form of guarantees. Over the same period billions of euros have been transferred from Greek to Swiss bank accounts. How do we explain that to ordinary Greeks, to ordinary EU citizens? How do we explain that it is those who pay their taxes who are being forced to bear the burden of austerity, whilst others blithely ignore their responsibilities towards society? No-one likes paying taxes, but most people recognise them as part and parcel of a healthy society. But this acceptance of the need to pay taxes is predicated on the principle of tax justice. If people who pay their taxes come to be seen as, if I may use this term, mugs, social cohesion in nation states and the European Union as a whole will be in danger of breaking down.

For some years now the European Parliament has been addressing the topic of how tax evasion and tax avoidance can be combated effectively. Yesterday, in adopting the Kleva Kekus report, we came out in favour of tough measures in the fight against tax fraud and tax evasion. We are delighted, therefore, that the ‘offshore leaks’ scandal has ended the impasse on this issue and that tax fraud is a topic at today’s summit. At times of crisis in particular we cannot afford to give up €1 trillion in tax revenue every year. I urge you to make a commitment today to cut the amount of uncollected tax by half by 2020. This would generate hundreds of billions of euros in additional State revenue every year, with no increase in taxes.

If we are to combat tax fraud and tax evasion effectively, we have to know what is really going on. Firstly, therefore, we need transparency, and, secondly, we need effective penalties.

Please allow me to illustrate what I mean by citing two examples – multinational companies and tax havens. It is quite simply unfair that it should be the largest and most successful companies which pay virtually no taxes, even though they benefit enormously from State investment in infrastructure and education and training. Some 98 per cent of all private individuals and all small and medium-sized undertakings are in the same boat here – they are in no position to take advantage of tax loopholes. Aggressive tax management and tax avoidance are used to place competitors at a disadvantage, and this in turn offends people’s sense of social justice.

Between €16 and 25 trillion, a sum which exceeds the EU’s total gross domestic product, has been hidden in bank accounts in tax havens around the world. Eliminating tax havens worldwide would be a Herculean task, but one which would pay huge dividends. For that reason, we should pledge here today that the EU as a body will take action against tax havens. As a first step we must at long last agree on a definition of what a tax haven is and then, on that basis, draw up a black list.

All multinational companies should be required to submit country-specific reports which set out, in a standardised, readily understandable form, details of the taxes they pay, the profits they earn and the number of people they employ in a given country. With a view to combating the aggressive tax management practised by companies, banks should also be required to disclose details of their activities and subsidiaries in tax havens. Companies which have their headquarters in a tax haven or which conduct some of their activities through subsidiaries based in tax havens must be denied access to public contracts and State aid. It is unacceptable that companies which pay no taxes should still be able to pocket taxpayers’ money in this way.

Two further ways of combating tax havens would be special levies on transactions effected in tax havens and customs barriers to trade with tax havens. What is more, financial institutions which are complicit in tax evasion should have their banking licences withdrawn.

One further important aspect of the fight against tax fraud and tax evasion is the need to adopt and implement proposed or existing legislation quickly – examples include the laws laying down provisions on automatic information exchange and measures to combat VAT fraud or fraud in connection with the taxation of savings. EU-wide exchanges of information concerning income from savings represent the end of banking secrecy in its current form.

Tax avoidance can only be combated if taxation systems are comparable and transparent. Tax harmonisation may as yet be a step too far for some countries, but definitions, processes and basic provisions should be comparable, so as to clear the way for the establishment of tax corridors. Tax dumping within the EU is not compatible with the European spirit of solidarity.

Only if we do our homework within the EU can we as a Union take on a leading role at international level and play our part in the fight against tax fraud in the context of the OECD, the G8 and the G20.

We welcome the fact that the Council of Finance Ministers has already issued the Commission with a mandate to open negotiations on new agreements on the taxation of savings with five non-EU countries – Switzerland, Liechtenstein, Andorra, Monaco and San Marino. This step should not be seen as fulfilling a precondition for the adoption of the directive on the taxation of savings, however. As a matter of principle we should refrain from concluding bilateral agreements and instead issue the EU as a body with a mandate to negotiate tax agreements with third countries – because that approach produces better results. What is more, a provision stipulating strict compliance with EU taxation standards should henceforth be included in all trade agreements.

Some people may regard these proposals as ideas for the distant future, but the FATCA Agreement between the USA and Switzerland showed just how quickly things can be done if the will is there: it was adopted in three months.

Yes, tax policy is a national, and not an EU, matter. However, tax fraud and tax evasion often transcend national borders. For precisely that reason, cross-border cooperation in the fight against tax fraud and tax evasion is essential.

The EU has committed itself to fighting organised crime. But tax fraud is also a serious offence! In recent years in particular the discussion about the right way out of the crisis has been heated and divisive – both here at this table and in bars and living rooms throughout the Member States. No such divides have opened up in the discussion about combating tax havens, so that the issue of the fight against tax fraud can be one which unites us and helps us to win back lost trust in European decision-making.

Looking ahead to the next EU Summit, to be held on 27 June, I should like to conclude my speech by making some brief remarks about the reform of Economic and Monetary Union. The long-term reform plans must not be used as a pretext to put off indispensable but perhaps irksome projects, as is currently happening with the proposals on banking union, supposedly because they would necessitate a revision of the Treaties. We need a banking union as quickly as possible in order to prevent any repeat of the banking crisis. Only if reliable funding is available for the real economy can we look forward to an economic recovery and, by extension, new growth and new jobs.

Full speech



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