Germany takes tougher action against tax havens

Germany takes tougher action against tax havens

Federal government toughens its crackdown on tax evaders. The cabinet approved a law by finance minister olaf scholz (SPD) that would make it more difficult to do business with countries that do not comply with international tax standards.

By eliminating tax advantages, scholz wants to make it less profitable to flee to tax havens and make the states think again. "We are doing something to dry up tax havens," said the vice chancellor. "Everyone has to pay their fair share of taxes, not just the bakery next door, but also the international conglomerate."

German bill based on EU blacklist of tax havens. The list includes twelve countries, including panama, fiji and the seychelles, which the EU considers to facilitate tax evasion or unfair tax competition. The list is controversial, however, partly because it does not include tax havens within the EU. Scholz emphasized that the joint european approach was important. "This is how we work together for more global tax justice."

Among other things, expenses for business and advertising costs from transactions with a link to tax havens will no longer be tax deductible in the future. New rules should also apply if income is transferred to a company in a tax haven. In addition, regulations on withholding tax, which is levied on capital transfers abroad, are to be tightened up. Bundestag and bundesrat still have to agree for the law to come into force.

The hope is that the law will generally discourage investors from doing business in the listed countries – and that it will also lead to reforms in the tax havens. Critics, however, do not expect a strong impact. The greens in brussel, for example, point out that the countries on the eu list account for only two percent of global tax avoidance by companies.

The german tax union criticized scholz’s draft as half-hearted because it was too dependent on the EU list. "He’s not a really sharp sword," said union boss thomas eigenthaler to the "saarbrucker zeitung". The federal government lacked the political will to draw up a blacklist of its own.

The german federation of trade unions stressed that all tax havens had to be dried up, including those in the eu. "This is also a question of justice," said board member stefan korzell. The left-wing finance politician fabio de masi also voiced criticism: "the EU’s black list of tax havens is irrelevant, because it excludes US states such as delaware and EU states themselves," he said.

Comprehensive punitive taxes on financial flows to tax havens are needed to force international cooperation. FDP financial politician florian toncar demanded that internationally operating large companies also pay their fair tax contribution. At the same time, the federal government must make corporate taxation in germany more competitive.

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