EU Panama Papers Probe Head: U.S. Tax Loopholes Must Be Closed

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By Joe Kirwin

The European Parliament’s special Panama Papers investigative committee concluded its four-day “fact-finding” visit to the U.S. with its chairman calling on the U.S. to close its tax loopholes.

In a March 24 telephone interview at the conclusion of the U.S. visit, the committee‘s chairman, German lawmaker Werner Langen, told Bloomberg BNA that EU members “have made appeals to the U.S. federal government and Delaware that there needs to be a clampdown on anonymity by introducing beneficial ownership registers.”

Referring to Delaware, he noted this “is clearly a loophole.”

His comments followed discussions with Delaware officials over the state’s corporate governance laws, often criticized in the EU for their lack of transparency when it comes to beneficial ownership of companies.

The panel’s mission, which included a visit to the U.S. Congress, Treasury Department and the Internal Revenue Service, comes amid EU efforts to draw up a tax haven blacklist, due to be finalized by the end of 2017.

Some European Parliament members and tax justice advocacy groups insist the list should include the U.S., since it has refused to adopt the OECD’s Common Reporting Standard. At the same time, the laws in some U.S. states permit the beneficial owners of companies to remain hidden, despite the associated risk of tax avoidance and evasion.

Exclusive Q&A With Inquiry Chairman

Committee Chairman Langen spoke to Bloomberg BNA via telephone to give his immediate thoughts on the mission.

Q. A recent European Parliament Think Tank report, along with a number of other reports, state that the U.S. is now one of the world’s foremost tax and secrecy havens. Do you believe the Trump Administration and U.S. Congress recognize why these assessments are being made and are willing to address these issues?

A. “I think it is too early to tell at this point. We had interesting discussions. In principle, there was a commitment to maintain the fight against tax evasion. But we were consistently told by officials that it is still too early in the Trump Administration as high-level positions need to be filled. Also, both federal government and U.S. Congress officials said they are waiting for policy direction from the White House.”

“We explained that there are big concerns in Europe. There are loopholes in the U.S. system at both the federal level and the state and they need to be closed because if they are not, it will make our efforts more difficult.”

Q. As you leave the U.S. for the return to Brussels, do you believe there is a commitment on the part of the Republican-controlled U.S. Congress to back legislation that would implement the Organization for Economic Cooperation and Development’s common reporting standard?

A. “The answers we received on this is that the U.S. has the FATCA [Foreign Account Tax Compliance Agreement]. But for us in Europe, FATCA is not good enough. There is no reciprocity with FATCA. We need to receive data as well as send it. That is the whole point of the Common Reporting Standard.”

Q. Based on your meetings with the U.S. Department of Treasury and the U.S. Congress, are you confident that the U.S. is committed to implementing the OECD base erosion and profit shifting reforms?

A. “The discussion on this issue was difficult because again, we were told that the Treasury Department is still waiting for direction from the White House. We made it clear these issues are very important for Europe. And that we need to stand shoulder to shoulder with each other in order to ensure they are adopted in order to fight corporate tax evasion and money laundering.”

Q. The issue of beneficial ownership transparency is key to the European Parliament’s commitment to tackling corporate and individual tax evasion. Do you feel confident that this commitment is shared by the U.S. government and the U.S. Congress, based on your meetings?

A. “We received mixed information. We were told at the federal level that this is a state issue. And we were told in Delaware that they would change if there is federal legislation. To some degree, we have a similar situation in Europe as there are differences between competencies on the EU and national levels.”

“But our members have made appeals to U.S. Federal government and in Delaware that there needs to be a clamp down on anonymity by introducing beneficial ownership registers.”

Q. Did you receive any indication from the state of Delaware that more transparency would be forthcoming when it comes to the beneficial owners of companies and bank accounts?

A. “Our meetings in Delaware were very helpful. I certainly left there with a better understanding. I think the basis of the Delaware laws are not designed to make the state a tax haven. I think they are designed for legitimate corporate law purposes.”

“But there needs to be changes for more transparency when it comes to beneficial owners. This is clearly a loophole.”

“That said, we in Europe are negotiating the terms of changes to new EU Anti-Money Laundering Laws. We in the European Parliament want anybody with 10 percent or more of ownership to be listed on a public registry. The member states only want 25 percent. This is not good enough.

Q. If the U.S. does not commit to adopting the OECD common reporting standard and to eliminating laws that allow for beneficial owners of companies and bank accounts to remain hidden, should it be listed on upcoming EU tax haven blacklist?

A. “In principle yes it should be. But there are still a lot of details that we need before that decision is made. If there is a commitment on BEPS reforms that would be very important. There needs to be tax reform in the U.S.”

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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