The cabinet approved legislation proposed by Finance Minister Olaf Scholz making it more difficult for companies to do business with states that do not comply with international tax standards.

“Everyone has to make their fair contribution to tax revenue, not just the bakery next door, but also major international corporations,” Scholz said.

The basis for the legislation is the EU’s existing blacklist of tax havens.

The list of “non-cooperative jurisdictions for tax purposes” comprises 12 countries and territories – including Panama, Fiji and the Seychelles – which in the EU’s view facilitate tax evasion or unfair tax competition.

Scholz stressed that only a joint European approach “would ensure more global tax justice.”

Among other measures in the new legislation, operating expenses and advertising costs linked to tax havens will no longer be tax deductible in the future.

There will also be new regulations if income is shifted to a company in a tax haven.

The parliament has to approve the bill before it becomes law.

Critics, however, do not expect a major impact from the new measures. The European Greens say that the countries on the EU list only account for 2 per cent of global corporate tax avoidance.