As European politicians race to announce tougher transparency laws in the battle against offshore tax havens around the world, many are dragging their feet when it comes to taking action on their own own shores
In fact, Brussels is considering the creation of a new form of incorporation that would enable secrecy.
A proposal currently under consideration in the European Parliament would create single-member private limited liability companies, formally known as Societas Unius Personae, that would shield the identities of their owners.
The aim of the proposed legislation, European parliamentarians say, is to stimulate cross-border business in the economic bloc, especially for startups and small- to mid-sized companies.
But some policy experts vehemently disagree. Markus Meinzer, a researcher at the Tax Justice Network, called the proposal a “scandal.” Europe, he said, should be fighting secrecy rather than promoting it.
“We are creating a European Panama system,” blasted one government source in Berlin in reference to last week’s release of the politically explosive “Panama Papers.” The leaked documents named numerous prominent European politicians and companies allegedly involved in anonymous offshore banking in the Central American tax shelter.
“Europe is stooping to this level.”
German politicians, including Finance Minister Wolfgang Schäuble, immediately reacted to the revelations by proposing measures to improve transparency, thwart illegal money laundering and tax evasion.
Germany as well as Austria, Belgium, Spain and Sweden also opposed the European Commission’s draft of the new law on anonymous single-member companies. E.U. justice ministers, however, still approved it, sending the proposal to parliament.
The legislation seeks to support Europe’s single-market economy by allowing such companies founded in one E.U. member state to be registered as subsidiaries in other member states. The measure would reduce administrative burdens and costs for such companies.
But many experts fear the legislation is susceptible to abuse. They point to lax standards enabling easy online registration of the inconspicuous incorporations with a symbolic minimum share capital requirement of only €1, or $1.4.
Oliver Vossius, who heads a German trade group of notaries, compared such companies to shell companies in Panama. “Europe is stooping to this level,” he said.
Opponents of the legislation hope to benefit from the fallout over the Panama Papers. Disclosed by Munich-based newspaper Süddeutsche Zeitung on April 3, the 11.5 million documents reveal that large corporations and wealthy individuals channeled funds through more than 200,000 offshore companies to avoid paying taxes.
The Panama Papers underline the importance of transparent business registries, according to conservative German politician Thomas Schäfer, the finance minister for the German state of Hesse.
“We in Germany would also throw overboard exactly this security and transparency of public registries, and open the floodgates to identity thieves and tax evaders.”
“With the planned guidelines for European single-member companies, we in Germany would also throw overboard exactly this security and transparency of public registries, and open the floodgates to identity thieves and tax evaders,” he said.
Both the upper and lower houses of German parliament have demanded that Germany’s coalition government stop the E.U. initiative.
Mr. Schäuble, Germany’s finance minister and a member of Chancellor Angela Merkel’s Christian Democratic Union, is opposed to the E.U. plan. At an International Monetary Fund meeting in Washington later on Tuesday, the finance minister will unveil a 10-point proposal to fight offshore tax shelters globally in the wake of the debacle in Panama.
German Justice Minister Heiko Maas, a member of the center-left Social Democratic Party, voted against the E.U.’s proposed law. But some members of the German government criticize the Social Democrat for not doing enough to stop it. Instead of simply calling for transparent business registries, he should be writing the European Commission urgent letters, government sources said.
Social Democrats and Green Party members in the European Parliament have voiced clear opposition to the E.U. proposal.
Sven Giegold, an economics and finance expert with the Green Party, said the Panama Papers scandal shows the need for greater transparency and “investigation” of those involved in tax evasion.
Even some members of Germany’s pro-business Free Democratic Party have concerns about the E.U. proposal to allow anonymous incorporation.
Michael Theurer, a European lawmaker and member of the Free Democrats, greeted the reform effort because it aimed at easing cross-border business for small- to mid-sized companies. But it should not come at the expense of “abetting aggressive tax planning,” he said.
The European People’s Party, which includes Germany’s ruling Christian Democrats, in the European Parliament, is overwhelmingly in favor of the plan.
The goal is to streamline incorporation laws in the European internal market, said Andreas Schwab, a Christian Democrat in the European Parliament.
Thanks to conservative party support, the proposal already passed parliament’s internal market committee and has moved on to the legal affairs committee. It remains unclear when the legal committee will vote on the legislation, or whether it will pass.