Grey Is The New Black In EU’s Tax Haven Blacklist

EU Releases First Blacklist Tax Havens

 6 December 2017

The EU has released its first ever blacklist of 17 tax havens, including South Korea, United Arab Emirates and Panama, as well as a grey list of 47 other jurisdictions, but has received criticism for going easy on notorious tax havens.

The lists, released on December 5 2017, were compiled by finance ministers of EU member states through screening against a set of criteria that measure tax transparency, cooperation and use of harmful tax practices.

The list ‘named and shamed’ 17 jurisdictions for failing to meet agreed tax good governance standards. Additionally, 47 countries were placed on a grey list, which means these jurisdictions have committed to addressing deficiencies in their tax systems, according to the EU. No EU member states were assessed.

The blacklist of non-cooperative tax jurisdictions listed American Samoa, Bahrain, Barbados, Grenada, Guam, South Korea (Republic of), Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and United Arab Emirates. The EU did not confirm what penalties it could impose on these jurisdictions.

Grey List

The grey list, which deemed jurisdictions as cooperative subject to meeting specific tax commitments, includes Hong Kong, Switzerland, Turkey, the Maldives, Bermuda, the Cayman Islands, Guernsey, the Isle of Man and Jersey.

“The EU listing process had a very positive impact as most jurisdictions engaged constructively with the EU during the listing process. Many made concrete, high-level commitments to improve their standards as a result of the EU screening exercise,” the EU said in a press release.

Lists receive critcism

The EU has received criticism for omitting the most notorious tax havens from the blacklist, instead placing them on the grey list of cooperative jurisdictions. The decision not to assess EU member states was also controversial.

Pierre Moscovici, EU tax commissioner, said on Tuesday at a hearing in the European Parliament that some EU member states still used “harmful tax practices which lead to aggressive tax planning”. He cited Malta, the UK and the Netherlands as examples. He also suggested that European funding to the blacklisted countries should be frozen.

Tove Maria Ryding, tax coordinator at NGO Eurodad, said the blacklist looked like an attempt to divert attention away from the fact that EU governments have failed to clean up their own house.

“The EU itself is central to the tax haven problem, and many European countries have tax structures that multinationals can use to avoid taxes – that’s deeply concerning,” Ryding said. “If EU governments really wanted to get rid of tax havens, they should be open about the fact that several EU member states, such as Luxembourg, Ireland and the Netherlands, also have to fundamentally change their behaviour. Unless we put a stop to all tax havens, the problem is just going to move from one place to the other.”

Rasmus Christensen, PhD fellow in international tax at Copenhagen Business School, said the UK played an important role by protecting the small Commonwealth nations which appear on the grey list. Alex Cobham, director at the Tax Justice Network, said the list was hard to take seriously.

“Rather than have a list of tax havens based on an objective set of criteria, as originally envisaged, the list appears to be a political fix with EU members picking their least favourite countries to name and shame. The result of the flawed blacklisting process is a politically led list that includes only the economically weak and politically unconnected,” Cobham said.

The EU met the criticism by saying it already had other tools in place to ensure fair taxation within the member states. It said member states are “bound by far-reaching new transparency rules and anti-avoidance measures”, as well as being a leader in implementing the OECD’s BEPS actions and international transparency standards.

James Smith, partner at Baker McKenzie, said all EU member states are fully compliant against the EU list criteria. “It is also worth noting that the list is intended to deal with external threats to the tax bases of member states,” he told TP Week.

“This [list] should raise the level of tax good governance globally and help prevent the large-scale tax abuse exposed in recent scandals,” the EU said. “It will help the EU to deal more robustly with external threats to member states' tax bases and to tackle third countries that consistently refuse to play fair on tax matters.”

All the jurisdictions included will receive a letter from the EU explaining why they were listed and what they can do to be taken off the list. The European Commission and the member states will continue to monitor the jurisdictions to ensure that commitments are being fulfilled, and will release a progress report by mid-2018. The EU also said it will update the list at least once a year.

The above article was published on on December 6 2017 and has been republished with the approval of the Publisher.