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Editorial: The Great Evasion

One trillion euros. According to the European Commission, this is what tax evasion costs the EU every year: about half the GDP of Italy, or a sum that could bail out the Cypriot economy nearly sixty times over.

At a time when Europeans are being asked to tighten their belts and 26 million of them are without work, the figure is certainly enough to promote some reflection.

The survey of tax havens carried out by the International Consortium of Investigative Journalists and published recently by 30 press titles around the world – probably the most significant journalistic collaboration in history – reveals to the larger public the mechanisms of high-flyer tax evasion and the names of several tens of thousands of its most adept practitioners, particularly in Europe.

The phenomenon has been known since financial flows were liberalised in the late 1980s and the first big tangled political and financial scandals that broke out on the Old Continent in the early 1990s. It was then that the general public began to learn of the existence of these mostly Caribbean countries that seemed to exist solely to stash fortunes out of sight of the taxman.

The phenomenon hit the headlines again during the banking crisis in Cyprus. Once again, Europeans grasped the consequences of failing to implement a policy of tax harmonisation.

While countries like Cyprus and Ireland were able to set up advantageous tax policies and experience a boom in "growth" that the structures of their economies did not otherwise offer, the failure to harmonise tax regimes across the continent has nonetheless encouraged massive capital flights that evade the treasuries of the states in which they are generated. With member states trying to sort out fiscal consolidation, control their deficits and support growth, the flight of tax revenues has given rise to competition that even threatens the unity of the EU.

Each time the issue resurfaces, the idea of tax harmonisation within the EU comes with it, only to be immediately pushed away. An "action group" was created in 2010 by the EU commissioner for taxation, Algirdas Šemeta, but the resistance from some members seems insurmountable: taxes are indeed one of the last levers of economic policy left to nation states, and several appear unwilling to give it up. Which holds the door open for billions to flee for greener pastures.

Would a harmonised taxation regime be enough to put an end to the haemorrhage of capital to tax havens? Most likely not. It must be accompanied by a harder line towards the European banks that encourage and practice migration to offshore havens and by bilateral agreements with the latter, to encourage them to cooperate with the authorities of the "dispossessed" countries.

To see the number of politicians – or their funders – named in the Offshore Leaks investigation, however, doesn’t leave much room for optimism.

Read this article in Dutch.

Reprinted with permission of Presseurop.