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will orchestrate their international operations so as to make transactions originate in that

specific country, eluding other countries income taxes. The OECD identifies three factors

to define a country a tax haven (OECD, 2015):

- Very low or nominal taxes, therefore attracting companies and individuals trying to

avoid high taxes in their country of residence;

- Protection of personal financial information, in order to avoid scrutiny by their

domestic tax authorities

- Lack of transparency, so that it is difficult for tax authorities in other countries to

determine a taxpayer situation.

Tax havens enjoy several indirect benefits: a lively banking and financial industry,

employment opportunities, indirect economic benefits (Forbes,2013) . Much of the

economic activity in tax havens consists of financial intermediation, managing funds

deposited in low tax countries and investing them in high tax countries, therefore enabling

financial service providers to provide multi-jurisdictional products without adding another

layer of taxation. In other cases, companies move their headquarters in low tax countries

to regulate their multicounty transactions, as it is the case with e-commerce. In this way

they create indirect economic impact for the hosting country.

Europe is home to some of the most famous tax havens in the world mainly thanks to

discrepancies between tax regimes that have created loopholes and large savings for

companies. According to the European Commission, governments in Europe lose around

1$ trillion each year because of low-tax havens (CNBC, 2013). Among members of the

Eurozone, Luxemburg, Ireland and Netherlands are the main tax or semi-tax havens. In

addition to them, the UK is attracting a lot of investment because of the favourable tax

situation in some of its Overseas Territories or Crown Dependencies. According to the

Economist significant percentage of the GDP of Luxembourg (10%), The Netherlands

(4%), Ireland (3,5%), Switzerland (3,2%) and Britain (2,3%), comes from foreign direct

investment (2015).

These countries are accused by the European Commission of leaving legal loopholes

open and encourage tax avoidance by big corporations in order to attract such

investments through tax agreements such as those of Apple in Ireland, Fiat Chrysler and

Amazon in Luxembourg, Starbucks in the Netherlands (Economist, 2015). The most recent

case refers to McDonald, that is accused of not paying taxes neither in Europe, nor in the

US (Bowers,2015).

Tax avoidance

Tax avoidance is defined as the use of legal methods to modify an individual’s financial

situation in order to lower the amount of income tax owed (Investopedia, 2007). One

common method to avoid paying taxes is to take advantage of tax havens. Tax avoidance

is possible thanks to:

- Discrepancies between different countries’ taxation rules: currently, there are 28

different systems in Europe for calculating a company’s taxable earnings, making it

costly and burdensome for businesses to operate in several member states. Not

only each country applies different tax rates on corporate income (Ireland is 12,5%

while in France is 34,4%), inheritance, asset holding or trading, but also different

rules for income calculation apply.

- Loopholes in taxation systems in different countries make it possible to

circumvent legislation.

- Multiple transactions across several countries, together with lack of

transparency. Starbucks, for example, had sales of £400m in the UK last year, but

paid no corporation tax. It transferred some money to a Dutch sister company in

royalty payments, bought coffee beans from Switzerland and paid high interest

rates to borrow from other parts of the business. Amazon, which had sales in the

UK of £3.35bn in 2011, only reported a "tax expense" of £1.8m.And Google’s UK

unit paid just £6m to the Treasury in 2011 on UK turnover of £395m (Barford and

Holt, 2013).

The effect on the unity of the Single Market

Tax revenues provide governments with the money they need to function and taxation is

therefore central to national sovereignty. At the same time, taxation needs to be fair; it

shouldn’t give businesses in one country an unfair advantage over those in another and

tax laws in a country should not allow people to escape taxation in another (European

Commission, 2015). When some nations exercise their sovereignty but go against these

principles, such as in the case of corporate taxation, a big issue arises of unfair

competition (based on who offers the lower taxes) between countries within the Union in

the attraction