Policy recommendations

  • The European Savings Directive needs to be extended by the European Member States. The automatic exchange of information should include companies and trust funds as well. This creates the opportunity to get information on MNCs as well as individuals, and it would make it more difficult to evade taxes.
  • The European Commission should be mandated to impose strict penalties on Member States which do not comply with good governance in tax matters, like the Member States that still support tax havens on their territories.
  • The European Union, on behalf of the Member States should oblige country-by-country reporting for MNCs enlisted in the EU.
  • The European Union should oblige MNCs to disclose the beneficial ownership, which would create transparency on transfers between companies, and increase the chance of ending transfer pricing.[28]

Case: Fair Taxes

10-10-2011 MEP Cretu: fight corruption and illegal transfers of capital

Taxes are the most sustainable, stable and predictable form of income for governments. By increasing tax income, developing countries could become more independent from foreign loans and aid. Moreover, public sectors like education, health care and infrastructure are traditionally financed from tax revenues. Raising the tax income would mean more funds to invest in these sectors, which will promote development.

However, often developing countries miss out on tax incomes due to tax evasion and illicit financial flows. The existence of tax havens makes these practices possible. Tax havens are territories, often developed countries, where transferred money is being protected by the scrutiny of foreign tax administration. MEP Corina Cretu (S&D) rightly notes that the practice of illegal capital exports from the world's poorest countries gravely reduces the effectiveness of development aid.

In our case study on Fair Taxes, we have pointed out the need for the EU to undertake actions to tackle issues like these. One possibility is to oblige companies to publish country-by-country reports, in order to force companies to disclose what taxes are paid per country. This would lead to more transparency and makes it possible to strive for more coherence between the EUs tax policy and their development objective to reduce hunger and poverty.

Fair Politics welcomes MEPs Cretus question to the Commission to take firm action to fight corruption and illegal transfers of capital. For raising this issue, Fair Politics recognizes MEP Cretu as fair politician and rewards her with one point in our monitoring system.

Monitor fair: S&D

Parliamentary questions
13 July 2011
E-006672/2011

Question for written answer
to the Commission

Corina Cretu (S&D)

Subject: Illegal capital exports from the least developed countries

The practice of illegal capital exports from the world's poorest countries gravely reduces the effectiveness of development aid. For every dollar received in international aid by the world's least developed countries, 60 cents on average are siphoned off illegally over the borders of the beneficiary countries. According to a report conducted for the UN by Global Financial Integrity, a total in excess of USD 197 billion illegally left the world's 48 poorest countries in the period 1990-2008. These illegal capital flows, with tax havens as their main destination, stand in the way of efforts to mobilise the resources needed for economic development and poverty reduction in countries with grave social problems, such as Bangladesh, Angola, Lesotho, Chad, Yemen, Nepal, Uganda, Myanmar, Ethiopia or Zambia (these being the main illegal capital exporters). In addition to the macroeconomic and structural factors which make this capital flight possible, defective governance is also a decisive element in the encouragement of this state of affairs, which is seriously compromising the effectiveness of development aid and stirring up doubts as to the usefulness of continuing with such assistance.
Will the Commission consider making development aid conditional on firm action being taken to fight corruption and illegal transfers of capital?