EU Finance Ministers Redrawing Lines Around Shell Companies

European Union finance ministers meeting this week easily agreed to share information on ownership of shell companies. Though there were some cautions about privacy in the meeting, they took a back seat to concerns about multinational corporations using offshore shell companies to hide assets and income and generally get around the rule of law. Proposed rules would require tax disclosures by multinational corporations with annual revenue exceeding €750 million. These are big businesses that have hundreds of employees, so that no one’s personal privacy is at stake. It is worth remembering that there are multinational corporations of every size. For a €500,000 corporation with five employees, full tax disclosure would tend to reveal personal incomes and other details of individuals’ lives. I fear, though, that finance ministers’ concerns about privacy have more to do with shell corporations that house personal investment funds. There is little justification for protecting anonymity in cases where a wealthy individual voluntarily creates or purchases a corporation in another country, not to do any business, but simply to avoid taxes on investments. The challenge is that it is hard to tell what the purpose of any specific shell company is as long as the owners and assets are unknown. Finance ministers agreed that these shell companies, whether owned by multinational businesses or billionaire-investors, are taking advantage of current rules to create a degree of secrecy that they don’t deserve.