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The EU Commission has been approving extremely low tax rates in Madeira for 30 years. The aim: to boost the economy. In fact, large international corporations and the super-rich are benefiting. Jobs are hardly created. And other countries are losing billions in tax revenue.

Tax haven with the blessing of the EU Commission

The tax advantages of the Madeira Free Trade Area have already attracted thousands of companies. For many years, companies did not pay taxes at all; since 2013, the tax rate has been the same at 5 percent. The low-tax policy is intended to bring growth and jobs to Madeira.

Jobs? Doubtful!

But the plan of Portugal’s government and the EU Commission does not work out according to research. Nevertheless, Brussels repeatedly grants approval to the Madeira free trade zone. Data and Research have made Madeira’s business register electronically searchable and systematically evaluated. This brings to light who really benefits from the Madeira system.

Large corporations, super-rich, kleptocrats

Large corporations had or have subsidiaries here. The US oil company Chevron appears in the documents and the Italian competitor eni, for example, or the beverage producer Pepsi and the Russian aluminium giant Rusal. The company headquarters is the same for all of them: a commercial building on the harbour promenade in Funchal. Over a thousand companies have registered here in recent years. They posted billions in sales at this address, but paid little or no tax.

When the tax rate was increased from zero to up to five percent, many companies left Madeira. Today, according to official figures, over 1,600 companies are taking advantage of the tax-saving opportunities that Portugal and the EU Commission are legally offering them. Many well-known names appear in the official gazette.

“An honest company that has nothing to hide, that will emphasize its real name in order to document and advertise its performance. But if I take a fantasy name, then I want to hide something. That makes every administrative practitioner in the tax office suspicious.”

In 1987 the EU Commission approved the low tax policy for Madeira for the first time. The year before, Portugal joined the European Union and wanted to lure investors to the remote Atlantic island of Madeira with a tax rate of zero percent. Since it was to apply only to Madeira and not to the whole of Portugal, it was an aid under EU law that had to be approved by the Commission. Permission was granted, but with one restriction:

“The Commission recalls that the present authorisation does not in any way imply the consent of the autonomous government of Madeira to the establishment of an ‘offshore’ financial centre in the free trade area.

No offshore financial oasis?

The analysis of the company register shows: Many companies are not owned by individuals, but by other companies. And they are often located in the well-known tax havens of Panama or the British Virgin Islands. Or in Luxembourg. Madeira is therefore a building block for company structures that have one goal above all else: Save taxes.

In the year 2000, even the EU Commission noticed that something might go wrong in Madeira. It notes that despite tax breaks of more than one billion euros a year, companies have created just 1,000 jobs. It is initiating state aid proceedings against Portugal. But the case is dropped without a result. Since then, the EU Commission has repeatedly approved the tax relief: 2002, 2007, 2013, 2014 and 2015. After all, companies today pay five percent taxes and have to create jobs.

The latest comparable official figures now look somewhat better: They date from 2014, when 1,868 companies created 2,721 jobs. But the evaluation of the company entries shows that the same names appear again and again. Individual managing directors are registered with dozens or even hundreds of companies. The tax authority in Madeira confirms this: If a person works for several companies, he or she is included several times in the workplace statistics.

The double standards of the EU Commission

The EU Commission continues to defend the low-tax policy for Madeira:

“The free trade zone is a job engine for the Madeira region. The Commission has no indication at this stage that the model is not in line with the prescribed rules”.

Ricardo Cardoso, Speaker of EU Competition Commissioner Margrethe Vestager

European politicians like Markus Ferber (CSU) no longer want to accept this:

“We can only be credible with Panama, Singapore, the Bahamas if we have our things in order. From Switzerland we always hear: First of all, get your own shop in order. There we weaken ourselves. That’s why I can’t understand why the European Commission has so far tolerated this, despite some indications.”

Markus Ferber (CSU), Member of the European Parliament

Nothing will change in the Madeira system so quickly: The EU Commission has approved it until 2027.