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News & Insights on Europe

News and Views on Europe – 10 Nov 2017

posted by eucentresg

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Paradise Papers – calls for tax haven blacklist getting louder
On Sunday (5 November) the so-called Paradise Papers were published, disclosing previously confidential documents about the tax activities of many of the world’s most powerful companies and people. The files were obtained by the German newspaper Süddeutsche Zeitung and released by the US-based International Consortium of Investigative Journalists (ICIJ), which was also behind the Panama Papers made public last year. ICIJ and 95 media partners explored 13.4 million leaked files, including nearly 7 million loan agreements, financial statements, emails, and other paperwork over nearly 50 years from inside Appleby, an offshore law firm with offices in Bermuda and beyond.

The European Union (EU) on Monday (6 November) denounced the “shocking” revelations. Margrethe Vestager, the EU’s competition chief who has cracked down on EU countries making illegal tax breaks to Apple and Amazon, lauded the journalists who made the latest revelations. She tweeted: “Congratulations and thanks to ICIJ for all the work done on Paradise Papers. It enables the work against tax avoidance, for transparency.” Also, European Economics Affairs Commissioner Pierre Moscovici said: “This new scandal shows once again that some companies and rich individuals are ready to do anything to not pay tax.” Despite all the tough talk from Brussels, the EU and its member states struggle to agree on a common line to tackle the issue.

On Tuesday (7 Nov), however, the EU’s finance ministers called for a blacklist of tax havens to be drawn up for approval next month. But some member states, including the UK, Luxembourg and Malta are reluctant to include zero or near-zero corporate tax rates as one of the criteria to land on the EU’s blacklist. Others have been resisting because some of their own jurisdictions are themselves offshore entities, like Bermuda and the Cayman Islands, both UK overseas territories. The main crux for the EU is whether blacklisted countries should be subject to sanctions, since their activities are often legal – or in a legal grey area. “I am not sure if there will be sanctions,” an EU official said, because member states need to unanimously back proposals on tax matters.

The Paradise Papers revelations seemed to have given a new momentum to the EU to address tax avoidance. While there appeared to be growing support for a blacklist of tax havens, one might also recalled that similar leaks last year, e.g. the Panama Papers, have led to several legislative proposals by the EU Commission. However, most of them are still stuck in talks among EU member states.

US tech giant Apple is also in the spotlight again – after being ordered in 2016 by the Commission to repay €13 billion in taxes to Ireland – with recent revelations. The Paradise papers revealed that Apple is using corporate entities in low-tax Jersey, possibly to avoid paying higher taxes in other jurisdictions. According to Vestager, European Commission officials had even before this revelation, asked for an update from the company on its current tax structure. Vestager reiterated that Europe is demanding companies to pay the appropriate amount of tax on activities conducted in the EU, dismissing accusations that EU officials were unfairly looking to collect taxes from international firms.

 

Catalan crisis – A new dimension?
After a Spanish judge issued a European Arrest Warrant on Friday (3 Nov) for Catalan separatist leader Carles Puigdemont and the other four members of the former Catalan government, who have fled with him to Brussels last week, Belgium finds itself at the centre stage of the Catalan crisis. The five Catalans turned themselves in to the Belgian police on Sunday (5 Nov). They were released without bail and put under judicial supervision in Brussels. This was different for how the other members of the sacked government were treated in Spain. They were locked up in pre-trial detention. Before the next hearing, which has been scheduled for 17 November, the Belgian judge overseeing the extradition request from Spain also asked for further clarifications from Spain on the charges, particularly on the accusations of rebellion and sedition.

While the EU institutions have remained rather silent on the latest events, the arrests have created tensions between Spain and Belgium, but also within the Belgian federal government. Deputy-Prime Minister (PM) Jan Jambon, a member of the Flemish nationalist party, which has its own separatist agenda, asked “What did they do wrong?”, and requested for EU intervention. Also, former Belgian PM and leader of the liberal ALDE group in the European Parliament, criticised the imprisonment of the Catalan politicians, calling it “disproportionate” and urged Spain to de-escalate the situation.

Following their release, Puigdemont and his team prepared for the snap elections in Catalonia on 21 December. But after missing an official deadline on Tuesday (7 Nov), Catalan pro-independence parties are set to run on separate platforms. Analysts suggest that the Catalan Republican Left (ERC), former coalition partner of Puigdemont’s center-right Catalan European Democratic Party (PdeCAT), has more to lose than to win from another alliance. Polls put the ERC in first place. This could ruin Puigdemont‘s chances of a comeback, now that the Catalan separatists looked set to contest the regional election separately.

On Wednesday (8 Nov) Spanish PM Mariano Rajoy stated he hoped the election would mark “the beginning of a new era” of “tranquility, security and certainty for citizens.” He urged people in Catalonia to register and get a “massive turnout” to vote. History shows that when turnout is high in national votes, anti-independence parties have performed better, whereas a low turnout tends to favour Catalan nationalist parties.

 

Malaysia and Indonesia rebel against bans on biofuels as EU unveils proposals to reduce transport emission
Late last month, the European Parliament’s environment committee voted to ban biofuels produced from palm oil (but not those from other sources), as part of the revision of the Renewable Energy Directive.

Datuk Seri Mah Siew Keong, Malaysia’s Minister of Plantation Industries and Commodities, penned an op-ed this week in Euractiv arguing the EU’s palm oil policies are dangerous because they underscore the EU’s short-sightedness in allowing the bloc’s strategic objectives in Southeast Asia, with profound job, security and prosperity implications, to take a back seat to short-term politics. Mah also called for a “more transparent and inclusive approach to regulation” that involve partner countries in the Union’s decision-making process to buttress two-way trade.

Following their minister, indigenous palm oil farmers from the Malaysian state of Sarawak issued an open letter addressed to members of the European Parliament (MEPs) on Wednesday (8 Nov). The farmers, many of whom are smallholders with an average farm size of four hectares each, explained that the palm oil industry has given them a chance to better their livelihoods and they have treated their land with “the utmost respect”. In the letter, they invited MEPs to “come and see for yourselves that what we do not cause deforestation or abuse human rights.”

Compared to Malaysia, the neighboring Indonesia, the world’s biggest producer and exporter of palm oil, reacted to the vote much more aggressively. Indonesia’s trade minister Enggartiasto Lukita told reporters on the sidelines of the Inaugural Ministerial Meeting of Palm Oil Producing Countries (IMMPOPC) held last week that Indonesia was prepared to restrict imports of milk powder and Airbus aircrafts in retaliation “if the EU treats us unfairly.”

The European Parliament’s vote was taken partly because it feared that booming demand for palm oil is causing massive deforestation in producing countries. But the EU itself is embroiled in controversies surrounding its environmental and transport policy. A new research estimates that the EU will exhaust its share of the global carbon budget within nine years, jeopardising the Paris Agreement’s two degrees target if emissions from fossil fuels continue at their current rate.

The European Commission unveiled a package of legislation regulating environmental aspects of transport on Wednesday (8 Nov). But critics from non-governmental entities and the Parliament suspect that the Commission essentially lack ambitions in setting targets for Europe’s car industry. For example, the new proposal does not contain mandatory quotas of zero-emissions vehicles and will instead leave it up to member states to drive sales. The proposal will surely disappoint mayors of nine EU capitals (Paris, Rome, Amsterdam, Madrid, Copenhagen, Brussels, Helsinki, Vienna and Sofia) who wrote joint letters on 25 October to the Commission, the Council and the Parliament. They asked the European institutions to adopt tougher mandatory legislation to minimise air pollution by cars, including a new Euro 7 “technologically neutral” standard for vehicles, and that all vehicle sales be “zero emissions” in the coming two decades.

 

A Vietnamese view on Europe and the upcoming East Asian Summit
The Twelfth East Asia Summit will be held early next week and European Council President Donald Tusk was invited by Rodrigo Duterte, President of the hosting country of the Philippines, to attend the Summit as guest. Xuan Loc Doan, a Vietnamese scholar wrote an opinion piece in Hong Kong’s Asia Times on Wednesday (8 Nov), arguing that the EU’s attendance in the Asian summit will not significantly boost its role in the region.

Xuan observed that, while the EU and its member states are keen to play a more influential role in Asia-Pacific affairs, the EU has not been seen as a key security partner for three reasons. The first is that the EU is a “security dwarf” that lacked collective military capabilities. Second, the EU considers the promotion of human rights and democracy to be inherently linked to security, trade and development aid, but many ASEAN countries don’t link internal and external affairs in such a manner. More fundamentally, Xuan argues that “whilst the EU can speak and act with a single voice in trade, it is difficult for it to do so in other foreign and security matters.”

Nevertheless, the EU’s participation is significant as the EU and ASEAN mark four decades of inter-bloc collaboration. The European Economic Community (EEC) – the predecessor to the EU – and ASEAN established formal relations in 1977 through the 10th ASEAN Foreign Ministers Meeting; these relations were institutionalised with the signing of the ASEAN–EEC Cooperation Agreement in March 1980. Further steps were taken in recent years with the publication of a 2015 Joint Communication to the European Parliament and the Council: The EU and ASEAN, a partnership with a strategic purpose and the 2016 Bangkok Declaration on Promoting an ASEAN-EU Global Partnership for Shared Strategic Goals.

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