Global Counterattacks: Europe and the US Want To Limit Tax Evasion and Reduce Dirty Money

The publication of the list of opaque companies from the Panamanian office Mossack Fonseca has provoked intense commotion among world governments. It seems that finally, after years of empty rhetoric regarding the urgency in limiting tax havens and using legal measures to restrict tax evasion by transnationals, the U.S. and European Union have decided to take an effective step against the hidden money. Barack Obama made a stern speech — supported by the Republicans — against U.S. companies that relocate to places with low taxes and “renounce their citizenship.” But the important thing is that the United States Treasury has tightened the rules on merging with companies from other countries in order to get more favorable tax legislation. Immediately the new regulation frustrated the merger of the century between the pharmaceutical companies Pfizer and Allergan, designed to place Pfizer under the loose Irish taxation laws.

The United States doesn’t want to lose more revenue because in other countries the taxes on companies are lower. And they have acted on it. The European Commission also seems willing to limit tax evasion. The commission announced new legal plans ordering multinational companies to give the government all available tax information, and ordering the companies to submit to conditions regarding information that are similar to conditions governing the banking sector. If the proposal is strictly enforced, we will be facing an important first step in ending certain multinational companies’ fun.

European Commissioner of Finance Pierre Moscovici said recently that Europe needs to approve “a common blacklist of tax havens.” It is such a necessary step that nobody can explain why it hasn’t happened before. The global balance of the loss caused by tax concealment through offshore companies or from going to places with compliant tax rules is devastating. The International Monetary Fund estimates that developing areas lose annual revenues of $200 billion, an amount with which they could improve their situation with respect to growth and employment. Private studies show that 20 percent of world income is hidden in opaque accounts protected by companies such as the ones revealed in Panama. This tax distortion is currently legal, but it shouldn’t be for long; in order for this change to happen, it’s important that all governments opposed to economies that live off hidden money act in harmony. Tax evasion weakens states’ positions with multinational companies and prevents the consolidation of global recovery.

In response to the alarm that has been triggered, governments have to act quickly and firmly. The Spanish Treasury needs to start inspection procedures against companies that haven’t been completely transparent or truthful regarding their assets abroad. This will prevent companies that hid money in Panama from benefiting from tax amnesty by presenting only complementary information. The tax agency cannot again afford to make an error as big as the one in which they discovered the HSBC accounts in Geneva.