EU blacklist of tax havens
As already announced in our last entry, we would like to take a closer look at some events that we considered noteworthy from a compliance perspective in 2017. Due to its topicality, today’s topic is the new blacklist of tax havens published by the EU on 5 December 2017. First of all, it is an achievement with flaws. The process of drawing it up was lengthy and marked by political compromises. We will also let the critics of the result have their say. If they have stayed with us as long as we have, we will compensate them for the long reading with a little highlight in connection with the Paradise Papers. Thank you for your interest!
The Blacklist is the result of a process that began in January of this year with the announcement of a broad-based investigation. 92 countries were to be examined against three key principles:
Tax transparency
How transparently do states and also companies deal with their taxes under the tax regime of the country, what are taxes levied for, how high are the individual tax rates, are there widely recognised standards for reporting that have been implemented in law.
Fair taxation
The absence of obvious tax avoidance schemes sanctioned by law.
OECD commitment
Commitment to implement measures agreed by the OECD to prevent damaging the economies of other countries through the design of their own tax systems (the creation of tax havens).
The EU Blacklist and the Parardise Papers
The list of addressees of the letter included large economies like Japan, the USA and China, small European countries like Monaco and Andorra, but also tiny ones like Niue, an island nation in the Pacific. The publication of the EU blacklist comes just a short time after the release of 13.4 million documents held by two “offshore service providers”, popularly known as the “Paradise Papers”. We will see in a moment how one event can influence the other.
The publication of the list is so explosive for the countries mentioned because the effect of the publication can be devastating for a nation whose economic performance is essentially based on granting discretion in financial matters as well as tax advantages, especially if it is to be feared that the “pillorying” function of the publication will be followed by economic sanctions by the EU and other institutions.
Here, however, lies the political “injustice” hidden in the system – while the UK, which feared finding its off-shore territories, as well as its Channel Islands, on this list, was able to obtain a reprieve by way of its veto power, which expires due to the impending Brexit but can still be exercised until 2019, countries such as Tunisia, Serbia and Armenia, which all appeared on a pre-published draft of the list, are denied this possibility. It is also noteworthy that no EU country is named overall; candidates for this were obvious. Switzerland does not appear on the EU blacklist either.
Classical tax havens with connections to Great Britain, on the other hand, appear on a “grey list”, i.e. they are under observation: Bermuda, the Cayman Islands, as well as the Channel Islands Guernsey and Jersey. They have committed to changing their tax system so that it will meet European standards in the future. Being named on the blacklist, on the other hand, leads to exclusion from EU funding opportunities, except in the case of development aid programmes.
With this approach, EU leaders are drawing criticism from activists and said smaller countries: Activist groups, journalists and think tanks united under the name “Open Data for Tax Justice”, for example, applied the EU criteria and came to a different conclusion: on their blacklist appear names like: Ireland, Luxembourg, and the Netherlands! (Link to the list and the complete data set – very impressive! – at the end of the blog entry)
Last but not least, a “tidbit” in connection with the publication of the list and the Paradise Papers: The Isle of Man hastily had a review of tax refunds to owners of private aircraft carried out in the run-up to the publication of the list and the announcement of the “Paradise Papers”. The result was astonishing: 957 owners of private aircraft had registered these aircraft on an island with a current population of 84,000 – a common means of transport there, it seems…
Our overall impression
The EU blacklist of tax havens as a result of the investigation was long overdue – for comparison: the predecessor of the new EU blacklist of tax havens was last updated in 2009 – at that time, the last three countries that were considered “non-compliant” were removed from this list. The announcement of a regular monitoring of the results of the efforts to create transparency also by the countries on the grey list is welcome. Nevertheless, the investigations and their results by activists around Open Data for Tax Justice, among others, show that there is still a lot of room for development in terms of seriously combating tax avoidance.
Sources:
Blacklist of the #0D4TJ – Open Data for Tax Justice
Tax Avoidance in European Countries – example UK and the Isle of Man