European Union finance ministers are set to approve a blacklist of non-EU tax havens on Tuesday, officially termed “non-cooperative tax jurisdictions” but it will exclude 3 of its member countries including Ireland who is among the top 5 global rich countries that in effect sustain the smaller tax havens. It will also exclude Luxembourg, and Malta where a journalist who investigated international tax fraud, was murdered last October.  


According to an analysis by Oxfam, the UK charity, at least 35 non-EU countries should be included in the EU tax haven blacklist, and 4 EU member states: Ireland, Luxembourg, the Netherlands and Malta.

The typical island tax haven would not survive without their rich enablers and the blacklist is in simple language a hypocrites’ charter.

The Oxfam report says:

“Citizens have witnessed the important role of several EU member states in multinationals’ tax avoidance schemes, as shown by the recent Apple and Amazon tax scandals, which involved Ireland and Luxembourg respectively. Brazil, for example, has recently decided to add Ireland to its national list of tax havens and has assessed some European tax regimes as harmful.

Worldwide only 5 countries are responsible for 47% of multinational corporate offshore investments flows to other tax havens. This is one of the outcomes of a massive new data-driven analysis of offshore investment flows published by the University of Amsterdam’s CORPNET research group.

According to Eelke Heemskerk, associate professor at the department of politics and principal investigator at CORPNET:

“Given the contested role of OFCs (offshore financial centre) it is surprising that we still lack a broadly accepted definition of what they are…To remedy this, we set up a team of political scientists and computer scientists who together developed a novel, data-driven approach that simply measures how corporations make use of particular countries and jurisdictions in their ownership structures. We created algorithms that analyse the entire global network of corporate ownership structures, with information of over 98m firms and 71m ownership relations with surprising results.”

The results identify two types of OFCs: ‘sink-OFCs’ or the typical tax havens that attract and retain foreign capital, and ‘conduit-OFCs’, through which huge amounts of value move towards sink-OFCs, enabling the transfer of capital without taxation.

CORPNET identifies 24 sink-OFCs, including well-known tax havens such as Luxembourg, Hong Kong, the British Virgin Islands, Bermuda, Jersey and the Cayman Islands. The research shows that only 5 big countries act as conduit-OFCs: the Netherlands and the United Kingdom, followed by Switzerland, Singapore and Ireland. Together these five conduits channel 47% of corporate offshore investment to sink-OFCs. The Netherlands and UK are the largest players with 23% and 14%, followed by Switzerland with 6%, Singapore with 2% and Ireland with 1%.

University of Amsterdam Corponet tax havens

Conduit-OFCs are highlighted in green, sink-OFCs are highlighted in red. The size of the country is proportional to the investment flows through the country and the colour to its position as a sink (blue = no sink, red = sink). The size of the arrows is proportional to the investment between two countries and the colour to its importance (blue = lower flow than expected, red = higher flow than expected).

The researchers say that distinction between sink-OFCs and conduit-OFCs has important potential implications for efforts to target tax avoidance. The authors show that while OFCs are often portrayed as small, exotic islands that are almost impossible to regulate, many OFCs are in fact highly developed countries that have the means to intervene. “Starting from the idea that some countries act as facilitators and some as tax havens we were able to characterize the role and importance of each country in the world, which can have a real impact in policy,” says Garcia-Bernardo, data scientist at the U of A’s department of politics.

The five major facilitators can play their role as crucial hubs of corporate investment only because they have a good reputation, political stability, highly developed legal systems, and because they have signed numerous tax treaties with other countries. This means the necessary conditions to function as a conduit-OFC are only present in a small number of developed countries.

The official line from the facilitators is that they support reform but behind closed doors, they seek to scuttle progress.

Last month a trialogue (informal meeting in EU terminology) comprising representatives of the European Commission, European Parliament and the Council (ministers of member countries) failed to agree on requiring transparency on anonymous trusts and shell companies (a non-trading firm used typically to hide profits, evade taxes and launder the proceeds of other criminal activity such as from illicit drugs), measures which has been twice supported by the European Parliament.


Irish offshore companies used by multinationals have anonymity by being unlimited and the company can be tax resident in up to 73 countries with whom Ireland has a double taxation treaty.

Several of these countries are very corrupt but it’s Malta that’s of interest to Irish-based multinationals as it has a refund system that typically results in an effective tax rate of approximately 0% to 5%.

Last week a European Parliament delegation visited the island in the aftermath of the car-bomb murder of Daphne Caruana Galizia who had investigated the 2016 Panama Papers’ leak. Ana Gomes, a Socialist MEP who headed the delegation, said the delegates’ meetings “led us to realise that the perception of impunity is very wide here.” She also described Malta’s cash-for-citizenship scheme as “extremely problematic.”

The Panama Papers had revealed that the wife of Joseph Muscat, Malta’s prime minister, was the owner of a Panamanian shell company.

In November, José Mourinho manager of the Manchester United football club, agreed to the demands of the Spanish tax authorities in respect of a €3.3m tax fraud relating when he was manager of Real Madrid in 2011 and 2012 “I didn’t reply, I didn’t argue, I paid, I signed the papers,” Mourinho told reporters, describing the case as “definitively closed.”

The Spanish state prosecutor had accused him of using offshore companies in Ireland, the British Virgin Islands and New Zealand to conceal his earnings.

The FBI reported in 2015 that a Russian-born naturalised US citizen had exported $65m worth of electronics in contravention of US law using “one or more foreign accounts held by shell corporations in the British Virgin Islands, Latvia, Marshall Islands, Panama, Ireland, England, United Arab Emirates, and Belize, and ultimately into one of the defendant’s US-based accounts.”

Ireland, shell companies

Dublin is also the location of what could be called shell company mills, which set up networks of offshore companies with proxy directors that hide the beneficial ownership of the companies.

Gabriel Zucman, a Frenchman who is an assistant professor of economics at University of California, Berkeley, wrote last month on tax avoidance and Ireland:

“Since it cut its rate to 12.5% in the 1990s – it has collected much more than high-tax countries. Is it because low taxes have spurred domestic activity, employment and growth? Not at all: the extra revenue originates from the fictitious profits that multinationals park in Dublin or Cork: profits generated by workers in other countries. The Irish government thus gets more income to spend on roads or hospitals; other countries get less. Nothing in the logic of free exchange justifies this theft.”

The EU’s Fourth Anti-Money Laundering Directive was to be transposed into national law by late June 2017. The Directive aims to fight tax evasion, money laundering and terrorist financing and requires public registers where beneficial ownership is 25% or greater of a corporate or other business entity.

The UK and Slovenia have been in the vanguard of producing public registers and in July 2016 in response to outrage triggered by the leaking of the so-called Panama Papers, the European Commission with the support of the European Parliament proposed an amendment to the Anti-Money Laundering Directive to force transparency on ownership of anonymous shell corporations and trusts.

Last month Margrethe Vestager, European competition commissioner, fined Amazon for using a Luxembourg shell company to avoid taxes in several EU countries while Apple and the Government of Ireland are appealing a fine of $13bn imposed by Vestager in respect of Apple’s use of Irish shell corporations to avoid billions in taxation (in the medium or long-term).

The release of the leaked Paradise Papers in November revealed that Apple has chosen Jersey as the tax residency of its two key Irish shell corporations.

The Irish authorities ─ the Revenue Commissioners and the Companies Registration Office ─ do not know how many non-resident companies exist, Michael Noonan, the former finance minister, told the Dáil in 2013. However, the Revenue has in recent times included a question on non-resident status in corporation tax returns.

Apple’s Irish shell companies use the address of the Cork campus and it did not have to use the Double Irish scheme as it appeared that the companies were onshore. Others have addresses of law firms or offshore services firms in places like Bermuda and the Cayman Islands while Dublin law firms provide the addresses of the likes of so-called “brass-plate” operations such as the holding company of JBS of Brazil, the world’s biggest meat processor.       

Shell games by multinationals and criminals

The research of Gabriel Zucman, and colleagues Thomas Tørsløv (U. of Copenhagen) and Ludvig Wier (U. of Copenhagen), found that the EU loses about 20% of its corporate tax revenue in tax havens:  45% of multinationals’ profits are artificially shifted to tax havens → more than €600bn in 2015 and global corporate tax revenue loss is around €200bn per year ( ≈ 12% of global corporate tax revenue).

The researchers say that under most sensible apportionment rule, European Union is the main loser (loses ≈ 20% of its revenue) and the main winners are: Ireland, Netherlands, Luxembourg (impose low rates of 2–3%, but on huge artificial base).

“Six European tax havens alone (Luxembourg, Ireland, the Netherlands, Belgium, Malta and Cyprus) syphon off a total of €350bn every year.”

On criminal gangs and individuals, hundreds of British shell companies are involved in an estimated £80bn of money laundering scandals, according to researchers calling for an overhaul of the UK’s “light touch” regulation.

New research from Transparency International, Hiding in Plain Sight, has found 766 companies registered in the UK that have been directly involved in laundering stolen money out of at least 13 countries. These companies are used as layers to hide money that would otherwise appear suspicious and have the added advantage of providing a respectability uniquely associated with being registered in the UK. “Almost all of this money originated from former Communist states in Eastern Europe, Central Asia and the Caucuses.”

The report says the UK is home to a network of Trust and Companies Service Providers (TCSP’s) that operate much like Appleby and Mossack Fonseca – companies at the heart of the Paradise and Panama Papers – who create these companies on behalf of their clients.

TCSPs will register these companies with UK addresses, often nothing more than mailboxes. This has created ‘company factories’, where thousands of companies can be registered to unoccupied buildings with little to suggest any meaningful business occurs. "We found half of the 766 questionable companies we identified were registered to only 8 separate addresses – in one instance a run-down building, next to a bank on Potters Bar High Street."

The recent indictment in the US of Paul Manafort, Trump’s former campaign manager, revealed that one of the companies alleged by the FBI to have been used to launder money was registered to a house in North London.

Transparency International says just 6 staff in the UK’s Companies House police the integrity of some 4m UK companies.

US states such as Delaware, Nevada and Wyoming, are notorious for ease in which crooks can hide their beneficial ownership of companies.

There are currently bills before the US Congress again, providing for transparency and the EU wants public registers providing information on beneficial ownership.

The Economist noted in 2016:

“research suggests that, for all the criticism, offshore financial centres have done more to comply with beneficial-ownership rules in recent years than their onshore peers. That may be surprising in the light of the Panama papers and other leaks — but much of what they contain is 15 or even 20 years old. The most comprehensive study, ‘Global Shell Games’ by Michael Findley, Daniel Nielson and Jason Sharman, was conducted in 2012. The authors e-mailed 3,773 formation agents around the world, posing as consultants looking to set up untraceable firms. Agents in offshore centres, they found, were much less willing to deal with them than service providers in OECD countries. Not a single one in Jersey or the Cayman Islands took the bait; dozens did in America.
The authors concluded that blacklisting had forced offshore centres to get tougher, whereas OECD countries had never faced equivalent pressure and could get away with being laxer. That could change with public registries—if more big countries follow Britain’s lead, and if both policing and punishment are strong. But Mr Sharman is not reassured by the blueprints on the table. Self-declaration without verification is, he reckons, the public-registry model’s weak point. As currently designed, it risks being ‘completely ineffectual.’”

The progress in tackling tax fraud, tax avoidance and the protection of criminals provided by shell companies has been very slow.

The looting undermines the rule of law when global brands become synonymous with tax cheating.

Tax evasion is shockingly prevalent among the very rich:

In Scandinavia, the top 1 percent dodges more than 30% of what it owes.