Venture capital funds
Agreement stumbles on tax havens
By Eric Ravenne | Wednesday 11 July 2012
The agreement on venture capital funds, reached after laborious negotiations at the 28 June three-way talks, was a last-minute success of the Danish EU Presidency (see
Europolitics 4455). Prime Minister Helle Thorning-Schmidt mentioned it at a press conference after the latest EU summit as an example of the effectiveness of its management for “growth and employment”.
But apparently in its haste to announce its achievements, the Presidency neglected to carry out a few elementary checks with member states. The agreement has just been challenged by a large blocking minority in an expert committee. This setback, which was expected to be confirmed late on 11 July in the Committee of Permanent Representatives (Coreper), will probably push the issue into a second reading. The European Parliament’s rapporteur, Philippe Lamberts (Greens-EFA, Belgium), does not plan to change his controversial definition of tax havens, the source of the disagreement.
There is consensus on the substance of the issue. The aim is to facilitate investments in European start-ups by creating a passport for venture capital firms, making it easier for them to raise funds across the Union. The idea is to emulate the financing of American start-ups. In the United States, venture capital funds are worth an average of €130 million, more than twice the average of European funds. Studies show that their size is important in terms of having a real impact on industries.
An anti-abuse provision prohibits funds established in a tax haven from being issued a European passport. The problem is that the European Union has no list of these jurisdictions. An earlier attempt to draw up such a list under the directive on alternative investment fund managers (AIFM) also sparked a controversy, without producing any concrete result.
For venture capital, Lamberts proposes, with the support of Parliament’s leading political groups and the European Commission, a broader definition of tax havens – going beyond simple references to the near-empty lists of the OECD and the Financial Action Task Force (FATF). It suggests targeting countries where taxation is non-existent or nominal, or grants advantages without any real economic activity. Beyond the problem of venture capital, this wording could set a precedent and become a legal definition of a tax haven, in his view.
In spite of some misgivings, the Danish Presidency accepted the new definition at the end of June. But on 9 July, ten countries led by the Netherlands expressed their disagreement in an expert group. The blocking minority, which also includes the United Kingdom, three Baltic states, Ireland and the Czech Republic, is expected to be confirmed in Coreper and Ecofin.
Lamberts is intent on maintaining the controversial paragraph. The draft legislation will therefore require a second reading and months more of negotiations.