Since the financial crisis broke out, the fight against tax havens has become a hot issue. Despite the commitments taken by the different world leaders and the G20, the policies put in place have proven not effective. This will equally be the case for the recently reviewed tax policy of the European Investment Bank (EIB). Although the Bank’s policy goes further than other IFI’s policies it won’t prevent European public money from putting in at tax havens.
The European Investment Bank has recently reviewed its policy on non-cooperative jurisdictions, better to say tax havens, or “secrecy jurisdictions” . Despite the EIB is one of the few international financial institutions having adopted at least a comprehensive public policy on tax havens it is legitimate to wonder whether the current policy commitment is making any difference in curbing illicit flows and the abuse of tax havens by European corporations benefiting from EIB public support.
Under a highly ideological approach, as always biased in favour of the investor's rights instead of public and taxpayers' interest, the Bank left several loopholes in the policy. Apart from the usual reference to the toothless international lists of countries regarded as tax havens, the main problem lies in the wide number of exemptions granted to European business operating via tax havens. The critique on the revised policy goes beyond the usual argumentation on double taxation and the inadequate legal framework of countries where projects are implemented – “inadequate” for the investor, but maybe very well suitable for local government and population. Surprisingly the EIB allows corporations operating in a specific country to register in a different country which is a tax haven just because there might be “other tax burdens that make the structure uneconomical”. Rather than a comprehensive tax policy this reads like a bad joke! Of course moving your business where taxes are lower allows generating more profits if income remains the same. What is even more concerning is that the EIB does not exclude the possibility to support a financial intermediary incorporated in a tax haven if this bank or other financial entity operates in sectors related to the local economy of that country. But how can ever the Bank assess this condition if money is fungible and the same intermediary can do proprietary trading or shift the money elsewhere in a highly liberalised global capital and financial market?
The wide spread use by the EIB of financial intermediaries and private equity funds poses a major threat to the Bank’s accountability, particularly in the lending outside of the EU where those mechanisms make up to nearly 40 per cent of its entire portfolio. As documented by a recent research by Counter Balance, all 12 private equity funds in which the EIB invested in Sub Saharan Africa between 2007 and 2009 were registered in well known tax havens. Two even in Luxembourg where the Bank itself is incorporated! This is a scam and clearly illustrates that despite tax haven policies European public money easily finds its way to tax havens.
The Bank should simply limit its partners to entities which are incorporated in the same countries as the ultimate beneficiaries and impose fully transparent and stringent standards on them for the projects they support. While this principle should be common sense after the financial crisis, they are not reflected in today’s practices of the EIB and the “trusted and experienced” financial partners it chooses. Information on the final beneficiaries is still absent which makes it impossible to assess the environmental and development impact of those projects.
Since the European Parliament will soon vote both the report on the 2009 Annual Report of the Bank and more importantly the new external lending mandate of the Bank; MEPs could have an important role in preventing public money ending up in tax havens. Let’s make sure European public money will be tax haven free by forcing the EIB to adopt stronger policies. The only way to do this is by obliging the EIB to disclose information on its financial partners and by ensuring it uses local intermediaries with a verifiable development mission. Of course they should operate in a transparent manner by implementing the highest environmental, social and human rights standards. Hopefully this will soon be reflected in the revised external lending mandate of the EU house bank.
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