Following the release of the Paradise Papers a few weeks back, the European Union has reignited its effort to assemble an EU blacklist of tax havens.
EU Vice-President for the Executive Branch Valdis Dombrovskis told the press that the Paradise Papers has pushed the EU to “put renewed emphasis on the work the European Commission is doing to fight tax avoidance.”
As reported by Reuters, the establishment of “an EU-wide list of tax havens meant to discourage the rerouting of profits made in the EU to tax-free or low-tax countries” is of primordial importance to the region’s government.
EU Tax Commissioner Pierre Moscovici commented that “it’s time that we agree and publish a blacklist on tax havens,” one that is ultimately “credible” and which imposes “adequate sanctions” for those jurisdictions included and who fail to collaborate.
Dombrovskis agreed, saying the EU “[calls] for an agreement on the list at the 5 December ECOFIN, but we also call for an agreement on countermeasures against those jurisdictions that will end up on the list. Only then this exercise will be credible and meaningful.”
Estonian Finance Minister Toomas Toniste said the EU’s “intention is to approve the list in December,” and he expects all Member States to approve of it.
The European Union has engaged in discussion with countries throughout the globe to see whether or not they would be willing to fall in line with the region’s more stringent tax transparency rules and criteria.
According to Moscovici, these dialogues have been extremely fruitful: “The vast majority of the 92 third countries we examined cooperated with EU experts [and] several of them have already committed to reforming their tax legislation to comply with European standards.”
Jurisdictions that are being considered for this EU blacklist include Liechtenstein and UK overseas territories such as the British Virgin Islands (BVI), Cayman Islands, Bermuda, the Isle of Man, Jersey and Guernsey.
All 28 EU Member States are exempted from being listed, as well China and the United States, where the State of Delaware plays an important role incorporating offshore companies.
Keep in mind that all 28 Member States must approve of a jurisdiction’s inclusion in the list; otherwise, it shall not be included.
Does the UK Oppose the EU Blacklist?
The UK, joining forces with smaller jurisdictions such as Malta and Luxembourg, has pushed back against the development of this blacklist as it expects the Crown Territories such as Bermuda and the Cayman Islands to be included.
Sven Giegold, the European Parliament Green group’s finance spokesperson, said about the UK’s position: “The British are particularly sceptical about the EU’s black list of tax havens, for self-protection. It takes a lot of British humour to understand that Caribbean islands with a corporate tax rate of zero per cent should not be tax havens, according to the EU definition. We must make best use of the Brexit negotiations to close the UK’s tax havens.”
Molly Scott Cato, a UK Green MEP, added: “Once again, the UK and its offshore territories are at the heart of things. This makes it all the more outrageous that the UK is among the countries blocking progress on the future EU blacklist. If the UK is to have a positive future trading relationship with the EU, it is going to have to clean up its act when it comes to tax.”
Politics Behind the EU Blacklist?
Several media analysts and advocacy groups think the EU’s motivation in setting up this list is driven primarily by political, rather than fiscal, factors.
The Cayman Compass’ Editorial Board, for instance, believes “the EU does not have the guts” to include China and the US in the list for obvious political reasons, as well as exempting traditional offshore company stalwarts like the UK, Ireland and Luxembourg.
Transparency International’s Elena Gaita agrees that the list is bound to be political in nature.
Referring to the group in charge of the list as “the most secretive council group — the council’s black box,” Gaita argues that the EU blacklist’s development will remain “a political process” given that the secrecy behind the process will lead to a “far from objective and comprehensive” list.
Jersey Confident It Will Avoid EU Blacklist
A spokesperson for the Crown Territory of Jersey, however, said the region is confident it will be able to abide by the EU’s criteria.
“We are confident of being able to meet the majority of the criteria being used by the EU for this assessment, given our strong track record of co-operation and our commitment to meeting international standards,” he said.
Jersey is concerned though by one specific criteria, which seemingly lacks a concrete definition.
The spokesperson questioned the specific definition of “the requirement that offshore structures in the jurisdiction being screened have ‘real economic activity’ or ‘substance.’”
“This is not helped by the fact that, currently, there is no international standard on these matters,” he stated.