The Counter Balance coalition is proud to release the first ever published in-depth analysis of the European Investment Bank loans for development projects to borrowers using tax evasion & tax avoidance schemes.
“Flying in the face of development. How European Investment Bank loans enable tax havens” is a report commissioned by the Counter Balance coalition to Eurodad policy analyst Marta Ruiz.
“This research demonstrates that there is a long list of EIB clients and projects in developing countries which use tax havens and similar secrecy jurisdictions”, reveals Desislava Stoyanova, Counter Balance Coordinator. “One of the most used tax havens for investments in the African region is Mauritius. This is particularly contradictory to the development purposes the EIB has under the Cotonou Agreement. Secrecy jurisdictions foster tax competition, allow bank secrecy and therefore corruption, and facilitate tax evasion and tax avoidance”.
It is little known that the EU House-Bank is increasingly lending outside the EU. With a mandate to lend EUR 27.8 billion over the 2007-2013 outside EU (excluding ACP countries) the European Investment Bank (EIB) is a leading financial powerhouse operating around the globe on behalf of the EU and its member states, the EIB’s shareholders. The EIB’s financing in the developing world is regulated by different EU mandates for each region in which it operates (1). The EIB will, for example, allocate EUR 2 billion to support Africa in the context of the financial crisis over the next three years, mainly for investments in infrastructure, energy projects and the financial sector (2).
In the last five years the EIB has loaned EUR 5.66 billion to the top tax haven users from the UK, France and the Netherlands, while EUR 210 million has gone to African funds using tax havens in their strategies. Furthermore, some of the major infrastructure projects financed by the EIB in the name of development happen to have close links with tax havens, which is also the case with financial intermediaries benefiting via the EIB's Global loans.
The case of Mauritius
Despite being blacklisted by the OECD for years and still considered as a tax haven by many analysts, Mauritius is now part of the OECD’s white list of countries that have “substantially implemented internationally agreed tax standards”. But there are many reasons to believe that Mauritius still poses serious problems in terms of secrecy and harmful tax competition.
A Norwegian government report on tax havens and development (June 2009) finds that; “Mauritius offers a location to foreign investors for a nominal fee to the government and for very low taxes protected through tax treaties. This is an example of a harmful structure, whereby Mauritius offers investors the opportunity to establish an additional domicile which allows the investor to exploit a virtually zero tax regime. In reality, the source country is robbed of tax on capital income through this type of structure, while the tax-related outcome for the investor is very favourable” (3).
See full list of EIB clients 2008/2009 starting p 12.
“Our study confirms what we have been suspecting: the EIB’s capacity to assess its clients is limited”, adds Desislava Stoyanova, Counter Balance Coordinator. “We are extremely concerned the EIB successfully screened out only four projects in recent years, based on evidence that they were or were intending to practice tax evasion. According to our findings, it represents just the tip of the iceberg. We thus demand that EU leaders, the EIB shareholders, practice at home what they preach in international forum such as the G20”.
In addition, the EIB‘s global loans are left out of this screening as these loans are provided on trust to Europe’s biggest banks, the largest users of tax havens. And on its monitoring of clients and projects following project approval – where again companies receiving EIB money are relied on to report against themselves if there is a significant change, a concept open to broad interpretation.
Even in the rare instances where the EIB does identify tax evasion practices, its sanctions are weak. There is no public announcement of companies that are excluded from finance, and no debarment from tendering for other EIB projects unless or until a final criminal conviction has been achieved. This does little to discourage companies, and is a far weaker approach than that being taken by the World Bank and other similar institutions.
Combined with the dramatic lack of transparency in the EIB which prevents concerned citizens’ groups checking up on the due diligence procedures or the evidence that is used, the EIB fails to make a convincing case that its money is all well-used according to its policy on fraud and corruption (4).
“Plugging tax leaks is mandatory to help maintain and extend public services, redistribute wealth, restore government policy space and enable developing country citizens to exert accountability on their governments”, pleads Desislava Stoyanova, Counter Balance Coordinator. “The promotion of progressive tax systems, the strengthening of tax administrations and the fight against tax and regulatory havens are critical in the area of development finance and must be reflected in European investments in developing countries as part of a coherent European development policy”.
Notes
(1) The mandates are given to the bank by the European Council with a double scope: to identify the EIB’s lending priorities and to grant the bank a European Community guarantee – a protection for the EIB against potential losses in riskier markets – for its lending operations outside the EU region. For the Africa, Caribbean and Pacific (ACP) region the EIB’s mandate falls under the Cotonou Agreement, while for Asia, Latin America, pre-accession and neighboring countries (Mediterranean, Eastern Europe, Southern Caucasus and Russia), the Council issues an ad-hoc decision.
In accordance with the Cotonou Agreement, EIB lending directed towards African, Caribbean and Pacific (ACP) countries falls within a development mandate. The Cotonou Agreement states that the EIB shall “act in accordance with the objectives of this Agreement” – defined as “reducing and eventually eradicating poverty consistent with the objective of sustainable development and the gradual integration of ACP countries into the world economy.”
In 2008 the EU Council committed, "to implement the principles of good governance in the tax area” and to “improve international cooperation in the tax area (…) and develop measures for the effective implementation of the above mentioned principles."
These principles are “transparency, exchange of information and fair tax competition”.
The Council added “the need to include in relevant agreements to be concluded with third countries by the Community and its Member States (...) a specific provision on good governance in the tax area”.Source
These principles have been ratified by the European Parliament’s report on tax fraud which says that Europe should take the lead and make the elimination of tax havens worldwide a priority, and “invites the Council and the Commission to use the leverage of EU trade power when negotiating trade and cooperation agreements with the governments of tax havens, in order to persuade them to eliminate tax provisions and practices that favor tax evasion and fraud”. Source
(2) www.eib.org/about/press/2009/2009-079-at-least-an-additional-ususd15-billion-to-respond-to-financial-crisis-in-africa.htm
(3) Commission on capital flight from developing countries. “Tax havens and development" . Status, analyses and measures”. Report from the Government Commission on Capital flight from Poor Countries. Appointed by Royal Decree of 27 June 2008. Submitted to Erik Solheim, Minister of Environment and International development, on 18 June 2009.
(4) Counter Balance (2009). The Long Struggle for Accountability of IFIs – the case of the EIB and the World Bank
“Flying in the face of development. How European Investment Bank loans enable tax havens” is a report commissioned by the Counter Balance coalition to Eurodad policy analyst Marta Ruiz.
“This research demonstrates that there is a long list of EIB clients and projects in developing countries which use tax havens and similar secrecy jurisdictions”, reveals Desislava Stoyanova, Counter Balance Coordinator. “One of the most used tax havens for investments in the African region is Mauritius. This is particularly contradictory to the development purposes the EIB has under the Cotonou Agreement. Secrecy jurisdictions foster tax competition, allow bank secrecy and therefore corruption, and facilitate tax evasion and tax avoidance”.
It is little known that the EU House-Bank is increasingly lending outside the EU. With a mandate to lend EUR 27.8 billion over the 2007-2013 outside EU (excluding ACP countries) the European Investment Bank (EIB) is a leading financial powerhouse operating around the globe on behalf of the EU and its member states, the EIB’s shareholders. The EIB’s financing in the developing world is regulated by different EU mandates for each region in which it operates (1). The EIB will, for example, allocate EUR 2 billion to support Africa in the context of the financial crisis over the next three years, mainly for investments in infrastructure, energy projects and the financial sector (2).
In the last five years the EIB has loaned EUR 5.66 billion to the top tax haven users from the UK, France and the Netherlands, while EUR 210 million has gone to African funds using tax havens in their strategies. Furthermore, some of the major infrastructure projects financed by the EIB in the name of development happen to have close links with tax havens, which is also the case with financial intermediaries benefiting via the EIB's Global loans.
The case of Mauritius
Despite being blacklisted by the OECD for years and still considered as a tax haven by many analysts, Mauritius is now part of the OECD’s white list of countries that have “substantially implemented internationally agreed tax standards”. But there are many reasons to believe that Mauritius still poses serious problems in terms of secrecy and harmful tax competition.
A Norwegian government report on tax havens and development (June 2009) finds that; “Mauritius offers a location to foreign investors for a nominal fee to the government and for very low taxes protected through tax treaties. This is an example of a harmful structure, whereby Mauritius offers investors the opportunity to establish an additional domicile which allows the investor to exploit a virtually zero tax regime. In reality, the source country is robbed of tax on capital income through this type of structure, while the tax-related outcome for the investor is very favourable” (3).
See full list of EIB clients 2008/2009 starting p 12.
“Our study confirms what we have been suspecting: the EIB’s capacity to assess its clients is limited”, adds Desislava Stoyanova, Counter Balance Coordinator. “We are extremely concerned the EIB successfully screened out only four projects in recent years, based on evidence that they were or were intending to practice tax evasion. According to our findings, it represents just the tip of the iceberg. We thus demand that EU leaders, the EIB shareholders, practice at home what they preach in international forum such as the G20”.
In addition, the EIB‘s global loans are left out of this screening as these loans are provided on trust to Europe’s biggest banks, the largest users of tax havens. And on its monitoring of clients and projects following project approval – where again companies receiving EIB money are relied on to report against themselves if there is a significant change, a concept open to broad interpretation.
Even in the rare instances where the EIB does identify tax evasion practices, its sanctions are weak. There is no public announcement of companies that are excluded from finance, and no debarment from tendering for other EIB projects unless or until a final criminal conviction has been achieved. This does little to discourage companies, and is a far weaker approach than that being taken by the World Bank and other similar institutions.
Combined with the dramatic lack of transparency in the EIB which prevents concerned citizens’ groups checking up on the due diligence procedures or the evidence that is used, the EIB fails to make a convincing case that its money is all well-used according to its policy on fraud and corruption (4).
“Plugging tax leaks is mandatory to help maintain and extend public services, redistribute wealth, restore government policy space and enable developing country citizens to exert accountability on their governments”, pleads Desislava Stoyanova, Counter Balance Coordinator. “The promotion of progressive tax systems, the strengthening of tax administrations and the fight against tax and regulatory havens are critical in the area of development finance and must be reflected in European investments in developing countries as part of a coherent European development policy”.
Notes
(1) The mandates are given to the bank by the European Council with a double scope: to identify the EIB’s lending priorities and to grant the bank a European Community guarantee – a protection for the EIB against potential losses in riskier markets – for its lending operations outside the EU region. For the Africa, Caribbean and Pacific (ACP) region the EIB’s mandate falls under the Cotonou Agreement, while for Asia, Latin America, pre-accession and neighboring countries (Mediterranean, Eastern Europe, Southern Caucasus and Russia), the Council issues an ad-hoc decision.
In accordance with the Cotonou Agreement, EIB lending directed towards African, Caribbean and Pacific (ACP) countries falls within a development mandate. The Cotonou Agreement states that the EIB shall “act in accordance with the objectives of this Agreement” – defined as “reducing and eventually eradicating poverty consistent with the objective of sustainable development and the gradual integration of ACP countries into the world economy.”
In 2008 the EU Council committed, "to implement the principles of good governance in the tax area” and to “improve international cooperation in the tax area (…) and develop measures for the effective implementation of the above mentioned principles."
These principles are “transparency, exchange of information and fair tax competition”.
The Council added “the need to include in relevant agreements to be concluded with third countries by the Community and its Member States (...) a specific provision on good governance in the tax area”.Source
These principles have been ratified by the European Parliament’s report on tax fraud which says that Europe should take the lead and make the elimination of tax havens worldwide a priority, and “invites the Council and the Commission to use the leverage of EU trade power when negotiating trade and cooperation agreements with the governments of tax havens, in order to persuade them to eliminate tax provisions and practices that favor tax evasion and fraud”. Source
(2) www.eib.org/about/press/2009/2009-079-at-least-an-additional-ususd15-billion-to-respond-to-financial-crisis-in-africa.htm
(3) Commission on capital flight from developing countries. “Tax havens and development" . Status, analyses and measures”. Report from the Government Commission on Capital flight from Poor Countries. Appointed by Royal Decree of 27 June 2008. Submitted to Erik Solheim, Minister of Environment and International development, on 18 June 2009.
(4) Counter Balance (2009). The Long Struggle for Accountability of IFIs – the case of the EIB and the World Bank
No comments:
Post a Comment