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EU-US trade and investment relations: Effects on tax evasion, money laundering

On 12 October 2016, the coordinators of the Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) decided to send a mission to the USA and more specifically to Washington, DC and to Delaware, from 20 to 24 March 2017. This Ex-Post Impact Assessment has been drawn up by the Ex-Post Impact Assessment Unit of the Directorate for Impact Assessment and European Added Value, within the European Parliament’s Directorate-General for Parliamentary Research Services, to provide Members with the necessary background information in support of their meetings in the USA.

The United States of America (USA) is seen as an emerging leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, it provides an array of secrecy and tax-free facilities for non-residents at federal and state levels, notably in Nevada, Delaware, Wyoming, and South Dakota. This Ex-Post Impact Assessment shows that:

  1. In general, trade and investment relations between the European Union (EU) and the United States (US) do not seem to have impacted on US efforts to combat tax evasion, strengthen anti-money laundering legislation and its implementation, and boost tax transparency.

  2. The EU and US economies have never before been as intertwined as they are today, especially in the fields of financial services, telecommunications, network industries, advertising, computer services and other related activities. The two economies together generate nearly half of the world’s gross domestic product and over 30% of global trade (2014). The USA is the EU’s top partner in trade in goods and they are also each other’s most important commercial partners and major growth markets for trade in services and related foreign direct investment.

  3. The EU is aiming to establish a framework for regulatory cooperation on financial services in the EU-US Transatlantic Trade and Investment Partnership (TTIP). To date, despite some results in the negotiations, achievements have been below expectations. Moreover, money laundering, tax evasion and tax transparency are not mentioned in the TTIP Section on Trade in Services, Investment and E-Commerce.

  4. Unlike virtually all of the other developed countries in the world, the USA has not signed up to the OECD’s Common Reporting Standard. It has, nonetheless, developed a robust framework of international agreements addressing international double taxation, tax fraud and other tax-related crimes. In accordance with the OECD model, the USA has signed tax treaties with all EU Member States, except Croatia. A provision establishing the exchange of information between competent tax authorities is included in all modern US tax treaties.

  5. The US Congress enacted the Foreign Account Tax Compliance Act (FATCA) in 2010 to target non-compliance by US taxpayers using foreign accounts. To date, the USA has signed FATCA Intergovernmental Agreements (IGAs) with all EU Member States, except Greece, to implement the FATCA regulation. US mechanisms in place allow for effective exchange of information, and information exchange partners have indicated general satisfaction with this programme. However, the effectiveness of US information exchange on beneficial ownership has raised concerns.

  6. According to the 2016 Financial Action Task Force (FATF) report, the United States has overall developed a robust legal framework to address money laundering activities and combat the financing of terrorism. Shortcomings remain in relevant sectors: privacy issues raised by some EU Member States, the generally unsatisfactory US information exchange system with regard to beneficial ownership and to designated non-financial businesses and professions, and challenges in facilitating cross-border exchange of information and enforcement of internal controls and foreign branches and subsidiaries.

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