#EUMercosur trade deal risks fuelling tax dodging – study

| December 6, 2018

The latest in a series of studies commissioned by the European Parliament’s Left group (GUE/NGL) looking into EU taxation is being launched, with the focus shifting onto the problems that could arise under a free trade agreement between the EU and the Mercosur, MEFTA.

Written by three Argentines – financial crimes investigator Magdalena Rua plus economists Martin Burgos and Verónica Grondona – ‘MERCO-SCAM – How the EU-Mercosur Free Trade Agreement would encourage illicit financial flows’ exposes the great potential for tax dodging and other illicit financial flows should a deal be concluded between the EU and Argentina, Brazil, Paraguay & Uruguay.
The key finding include:

  • The leaked draft MEFTA appears to favour loose fiscal, financial and exchange regulations;
  • in essence, the proposed MEFTA will be very similar to the EU-Andean Community free trade agreement on goods, services, financial services and the movement of capital;
  • the negotiators’ objectives are to liberalise and deregulate control mechanisms – conveniently overlooking many aspects in the negotiating articles that would make tax-dodging and money-laundering possible;
  • capital controls would be restricted and speculative financial services would be liberalised. At the same time, it could limit possibilities for countries in the agreement to identify the states with high levels of tax avoidance opportunities and financial secrecy, as well as other measures to prevent illicit financial flows, tax evasion and money laundering;
  • with the Mercosur’s four developing countries’ stock of offshore financial wealth in 2017 exceeding US$ 853.7 billion, whilst between 2008-2017 the average annual outflows from these countries was around $56.4 billion, that’s a lot money that leaves the bloc, depriving the countries of tax which cannot then be re-invested;
  • likewise, the stock of offshore wealth for some EU member states run into trillions (Luxembourg: $12.6 trillion, which represents 20185% of GDP; the Netherlands’s at  $10.1 trillion, 1228% of GDP), the risk of financial instability is high when huge amount of in and outflows remains untaxed. MEFTA could therefore exacerbate the problem for both sides;
  • the study also examines the different components of illicit financial flows and presents an estimation of the problem of the possible increased flows of capital, services and goods that would take place within MEFTA, and;
  • the existing and highly flexible tax systems and liberalised financial and exchange regimes could facilitate these flows, as well EU and Mercosur countries which are renowned tax havens and/or financial secrecy jurisdictions.

The study also includes policy recommendations on closing the loopholes to combat tax dodging, illicit financial flows and money laundering.

Commenting on the study, GUE/NGL’s Matt Carthy (Sinn Féin, Ireland) said: “The rumours of the death of the EU-Mercosur free trade agreement have been greatly exaggerated. It has already been announced that a technical meeting between the partners will take place on 10th December, following informal discussions at the G20 summit.

“I have many problems with the proposed deal, which I have been campaigning against alongside Irish farmers and civil society – not least the policies of the Brazilian government and far-right militarist, Jair Bolsonaro. The EU cannot claim to promote universal values of human rights and equality while at the same time making trade deals with such a government,” he added.

“The report we are launching today makes it clear that this agreement will also have a seriously detrimental impact on both partners in terms of the liberalization of the financial services sector, dismantling mechanisms that have been put in place to prevent capital flight, and combat tax-dodging and money-laundering.”

“The authors demonstrate how this liberalization will allow billions more euros to be moved offshore to tax havens and secrecy jurisdictions, whilst also increasing the threats to financial stability among both trading blocs,” he concluded.

This study marks the latest in a series of GUE/NGL-commissioned studies looking into tax evasion and tax justice encompassing the role of the Big Four accountancy firms, CCCTB, the EU’s Tax Treaties with Developing Countries, Apple’s tax dodging and the Panama Papers over the past year. You can read more of the coverage by visiting the special website on tax justice.

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Category: A Frontpage, Corporate tax rules, Crime, Economy, EU, Money laundering, Tax dodging, Taxation