This is the third in our series of articles looking at some of the topics to be discussed at our November 2018 conference, Beyond Borders: International Taxation into 2020. More specifically, one of the panels will look at the state sovereignty and taxation issues in Europe and beyond. Book your early bird ticket HERE before it’s too late!
We’re excited to announce that the full transcript for our webinar on sovereignty and taxation issues in Europe and beyond, which took place on June 20th, is now available for those of you who missed it.
Plenty of thanks to our panelists, Dr. Csaba Magyar, TEP, Managing Director, Crystal Worldwide Group, Hungary; Dr. Ronen Palan, Professor of International Politics, City University London, UK, and; Dr. Ajay Kumar, Assistant Professor, University of Dubai, UAE, for their valuable contributions to this enlightening and somewhat controversial debate.
Feel free to download the full transcript as a PDF and check out some of the event’s highlights below.
What is tax sovereignty? What is the functional role of sovereignty in taxation? And why is tax sovereignty important?
Csaba Magyar: “It must be highlighted that there are a lot of advantages to having a common concept of taxation...But sometimes, there are a lot of harmful practices in the field of tax coordination and international cooperation in tax matters because they do not pay attention to the tax sovereignty of many countries. From this perspective, it must also be highlighted that there are a lot of third, non-European countries that are also influenced by this practice, and sometimes they cannot determine their own tax policy because of the OECD and European countries.”
“What happens is two things with regards to tax. First, when you join a club, you give up some of your rights over taxation; for example, the WTO or, in the case of Europe, a European organization. There are various goals, which seem to be contradictory to one another. The goal, for example, of creating a single market may affect the right to all kinds of rules and regulations, which affects the competitiveness of companies and individual taxation. The second issue is the spillover effect. There are tax regimes that may be intended either directly or indirectly to attract non-residents and may affect other countries. Countries may feel that they are being impacted as a spillover because of the tax rules of one country, and countries can respond in different ways. They can respond by putting pressure on those countries and that's, I think, what we're talking about.”
What are the pluses and the minuses of the impact of the United States, the OECD, and the European Union on the tax legislation of third countries?
“As you can see, the U.S. can decide whether it wants to be inside or outside, and it can go ahead with its own laws. So I think there are positives in a sense; the things that they do unilaterally have, in due course, become the norm later on, right?”
“The answer to the question is very difficult for me to answer because my sense is broadly that the international tax regime…is not functioning that well. It's not functioning that well in terms of, say, economic efficiency, justice, and, particularly, in the case of corporations. So the result at the moment is not a well-functioning system, and the institutions that are most likely to be able to change it are three of the largest economies in the world: the United States, the European Union, and China…The way the United States is operating is essentially using its large market. The United States is taking a series of unilateral positions, particularly on FATCA, in which it says: ‘You know what? Whatever the rules you want to have in your country, if you want to deal with an American citizen or corporation in our economy, you have to follow our rules.’ So in a sense, the United States uses its market power to force others."
What is the approach of the smaller EU member states to the CCCTB?
Csaba Magyar: “The small countries are afraid of this new system because this can bring us a little bit closer to a so-called global taxation, so it means that, at least, we could have some kind of a common European tax system. But according to some professionals, there is no proper calculation on the effects of this kind of common tax base on the European Union… It would be great to find the system that can work; everybody could follow this system but with less administrative responsibilities.”
Ajay Kumar: “If you are having a jurisdiction, which is quite well versed in terms of the legal system, human capital, and all of those things, then, yeah, tax doesn't play a role. But for the others to really have an impact in terms of attracting whatever might be the capital, I think that the capital always has a spillover effect. And especially in a place like Dubai, there's not an inch of space that has not been touched by whatever might be the capital that has flown in. Even if you're looking at Mauritius—of course these are all small states—that's probably the only country that has had a positive GDP growth in the last 40 years. So although there is this whole idea that there is good money and that's the only thing that is going to really bring in economic development or changes as such, I am a bit skeptical on that one.”
How do blacklists influence the sovereignty and tax issues of the blacklisted countries? Does a blacklist prove to be effective? Is it actually worth the time of the EU or the OECD to release a blacklist?
Ronen Palan: “These are very soft tools. These tools, however, can be useful for two purposes. One, reputation, in the sense that particularly large companies and even individuals don't want to be associated with countries that are recognized as supporting money launderers or tax evaders… The advantage of a blacklist…is that the whole purpose of the list is to be removed from the list. We'll create the list so that you can be removed. That means it's up to you to decide whether to react to it. Namely, you are the sovereign…And, two, many countries maintain their own list of countries that they consider to be tax havens, and…that means that they will treat investment from those jurisdictions with extra care. And they announce it. They will either demand more scrutiny, more due diligence. I don't know about prevention of investment for those jurisdictions, but they will certainly increase the costs to make sure, because they don't feel comfortable with those jurisdictions.”