The long recession has one silver lining; EU leaders are finally tackling 'tax shopping' head on

Cyprus was widely criticised for offering a haven for the money of Russian oligarchs, but the rest of Europe is littered with similarly cosy nooks

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The Independent Online

It’s not just in Britain that the tax avoidance habits of huge corporations are making people angry. The European Union may not have an exact equivalent of the formidable Margaret Hodge, MP, who gave Google’s Matt Brittin such a tongue-lashing some days back, but, in their mild, ruminative way, the Eurocrats will be tackling the same issue in Brussels next week, under the purview of Council President Herman Van Rompuy.

It’s about time Europe got to grips with a problem that is not so much on its doorstep as infesting the wallpaper and nesting under the floorboards. Under pressure from the US, Switzerland dropped its protection of banking secrecy in 2009, but within the union outrageous levels of secrecy, rock-bottom tax rates and gaping loopholes persist, despite many years of pressure by the European Commission.

Belgium is particularly hospitable to giant companies looking for shelter. Germany’s Der Spiegel magazine recently revealed how Volkswagen’s Belgian subsidiary paid no taxes at all on profits of €153m last year. The Belgian subsidiary of German chemical giant BASF made €488m in profits in 2011 and likewise paid no tax there. During its recent banking crisis, Cyprus was widely criticised for offering a haven for the money of Russian oligarchs, but the rest of Europe is littered with similarly cosy nooks, including Luxembourg, Liechtenstein, Monaco and San Marino.

The Vatican, of course, with its interesting and varied clientele, is in a league of its own. Corporate tax rates in Malta are, in theory, a robust 35 per cent, but once various discounts and rebates are applied, they tumble to 5 per cent.

If the long recession through which Europe is living has a silver lining, it is the fact that neither the people nor the politicians of the Continent are prepared to put up with this any more. Algirdas Semeta, the EU’s senior official responsible for tax issues, calculates that Europe loses more than a trillion euros a year through tax evasion and avoidance. But the days when that was winked at are, he maintains, numbered. “Bank secrecy is a relic of the past,” he says.

If he is right, it will be a happy day, because “tax competition” or “tax shopping”, as the practice is known, damages not only the budgets of nation states but also their efforts to persuade the people at large to pay their taxes. When the nation’s most powerful political leader himself turns out to be a champion tax shopper, as is claimed to be the case with Silvio Berlusconi, it has a doubly debilitating effect on the fight against tax evasion.

Businesses that boost their bottom lines by the practice, and states which depend disproportionately on it, claim that tax competition is as natural to capitalism as other forms of competition. By reducing British corporation tax to 20 per cent recently, the lowest rate among the G20 countries, George Osborne could argue that he was doing the British economy a favour. But, as the Tax Justice Network points out, cutting taxes on mega-rich corporations is a way of redistributing wealth upwards: reducing the revenue from corporations means taxing the poor more heavily or cutting state budgets, or both, to compensate. Only by eliminating tax havens will the compulsions of tax competition recede.

Britain’s record of fostering tax havens, from Jersey and the Isle of Man to the British Virgin Islands, is as bad as any country’s, but now that even the Caribbean territories have agreed to share bank account information, it is very much in our interest that Europe get its act together, too.

Because we belong to the EU, we can weigh in on the question at next week’s summit, and if the EU has sufficient muscles, it will succeed in imposing its will on members such as Belgium and Luxembourg which for years have been dragging their feet. No clearer or more popular argument for the importance of a strong, effective European Union could be made – but who is making it?

Czech mates on track

Prague’s public transport system, called Ropid, has a problem which London’s has not known for many years: a shortage of passengers. This has prompted Ropid to look for new ways to lure people aboard, and the latest could take the world’s underground railways trundling off on a new tangent.

Later this year it plans to designate carriages on all three of the city’s tube lines singles-friendly. Passengers will be encouraged to ask each other out for dates. As the distance between stops is five minutes at most, the embarrassment of rejection, when it occurs, need not last long.

The idea, says the system’s spokesman, “is to show what activities you can do in public transport that you cannot do inside your car … More and more people are single … we would like to help these people”.

It is an admirable initiative and could become one of the Czech Republic’s most useful gifts to European civilisation. How many times have Tube passengers both young and not so young gazed in silent yearning at the individual parked opposite? Finally there will be a forum in which they will be permitted to do something about it. It could start a revolution.