EIB must tighten rules on tax havens, NGOs warn

The European Investment Bank (EIB) must tighten up its lending rules to prevent its money being funnelled through tax havens, NGOs have warned in a new report.

The report ‘Towards a Responsible Taxation Policy for the EIB’, published on Tuesday (21 April) by transparency NGOs Re-Common and Counter Balance, calls on the Luxembourg-based to set up its own ‘Tax Unit’ to assess how much corporate tax its clients are paying, and produce its own analysis of tax havens rather than rely on the OECD’s ‘black and grey’ list of jurisdictions.

The EIB lent more than €77 billion in 2014, of which €8 billion went to investment projects outside the European Union. The Luxembourg-based bank lends directly to an array of large and small businesses and other financial institutions.

The NGOs argue that identifying beneficial ownership - where a company has a secret owner - would allow the EIB to know who ultimately owns, controls or benefits from a company or fund that receives its support.

EIB clients should also be required to produce country-by-country-reports, the report adds.

“Countries receiving loans from the public, though institutions like the EIB, should declare to the public their beneficial owners and information on where the profits from a project will accrue,” the report argues, adding that this “would allow the public to see whether companies are engaged in off-shoring their profits into tax havens.”

This demand for all companies seeking EIB funds to publish country-by-country-reports (CBCR) also featured in a European Parliament report adopted in March 2014. At present, EU rules require CBCR only from banks and firms in the extractive and logging sectors.

“Recent revelations such as Luxleaks and Swissleaks prove that Europe is losing out billions of euros because of tax dodging, and in developing countries the situation is even worse,” said Antonio Tricarico, the report’s author.

In reply, the EIB noted that most of the reforms proposed by the report would require legal changes to be agreed by MEPs and ministers.

The EIB has a policy commitment to preventing tax avoidance, money laundering and other damaging activities, including a general prohibition on investments linked to non-compliant jurisdictions (NCJ) or tax havens.

However, a report by the Illicit Finance Journalism Project last October found that the EIB had lent money to a number of companies operating in tax havens. For example, Qalaa, an African investment fund with $9.5 billion on its books, has received hundreds of millions of euros from the EIB, but is domiciled in the British Virgin Islands.

The EIB, which relies on the EU’s 28 countries for its capital, is one of the largest development banks in the world. Its triple-A credit rating and ability to borrow large amounts of cash at low interest rates makes it a highly attractive institution for private firms to work with.

In Europe, meanwhile, the bank is set to be the driving force behind the European Commission's flagship €315 billion infrastructure investment fund.