New EU tax blacklist floated

European Commission headquarters in Brussels.

The European Commission plans to reform national tax blacklists of EU member states by replacing them with a common EU-wide blacklist. The proposal is part of new measures against corporate tax avoidance presented by the Commission last week.

The Cayman Islands was one of 30 “non-cooperative jurisdictions” blacklisted by at least 10 EU states in a list published in June 2015.

The list drew heavy criticism from those included on the list and entities such as the Organization for Economic Cooperation and Development, which said that a number of countries identified by the EU, including Cayman, were either fully or largely compliant with international tax transparency standards and had committed to automatic exchange of tax information.

The list, based on national anti-avoidance measures that tend to vary considerably, was also criticized for the inclusion of developing countries, which often do not have the capacity to implement the tax governance framework demanded by the EU.

Despite the criticism, the Commission said the publication of the list had the immediate effect of alerting countries and “prompting new discussions” on good tax governance, “allowing third countries to clarify issues related to their tax regimes and member states to detail their concerns.

“This increased transparency also encouraged those Member States with listing processes to scrutinize their lists and ensure that they were well-founded, accurate and up-to-date,” the Commission said in a communication on an “External Strategy for Effective Taxation.”

The document argues that in order to ensure a level playing-field, the EU needs stronger instruments to respond to non-EU countries that refuse to respect tax good governance standards.

EU states and the European Parliament had voiced strong support for a single EU framework for addressing tax governance concerns with third countries that would replace the current medley of national systems.

The national systems were based on a recommendation by the Commission to consider transparency, information exchange and fair tax competition as the three criteria for assessing third countries’ tax regimes.

However, despite the general consensus on this approach, the Commission said it has become clear that EU states have “used the recommended criteria in a patchwork manner, or not at all.”

The Commission therefore advocates a three-step process which would first shortlist countries that should be prioritized for screening by the EU by fall 2016, assess those countries against an updated set of EU good governance criteria and then include countries that are non-cooperative in an “EU list of problematic tax jurisdictions.”

“Clear conditions for de-listing will also be set out for each jurisdiction added to the common EU list. Listing a jurisdiction should always be considered as a last resort option. It should be reserved for those jurisdictions that refuse to engage on tax good governance matters or fail to constructively acknowledge EU concerns with their tax systems,” the document said.

However, once a jurisdiction has been added to the EU list, all member states should apply common counter-measures against it.

These counter-measures should serve both to protect member states’ tax bases and to “incentivize” the jurisdiction in question to make the necessary improvements to its tax system, the Commission said.

Cayman continues to be listed as “non-cooperative” in tax matters by Belgium, Bulgaria, Croatia, Greece, Lithuania, Portugal and Spain.

The plans also include proposals that would prevent EU funds from being invested in or channeled through entities in non-EU countries that do not comply with the principles of “fair tax competition.”

The EU Financial Regulation already prohibits the routing of EU funds through entities in third countries that do not meet international tax transparency standards. But the Commission believes these provisions could be extended to also encompass the EU’s principles for fair tax competition.

“In the past, the Commission has had to block certain projects submitted by international financial intermediaries because they involved unjustifiably complex tax arrangements through harmful or no tax regimes in third countries. Strengthening the provisions to include fair tax competition requirements could prevent such cases from arising,” the Commission proposal said. “The European Parliament has also asked for measures to ensure that EU funding cannot be routed through low/no tax jurisdictions.

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  1. But yet the EU does nothing about one of its member states, Eire, which has a corporation tax rate about half of the other EU countries.

    The fact is that we in the Cayman Islands can never satisfy the Eurocrats who take offense at any system of government that does not involve outrageously high tax rates. Even as French citizens depart France in droves due to those tax rates.
    We would need to introduce 50% income and 30% corporation tax rates to make them happy. At which point our financial services industry would cease to exist. And THAT WOULD MAKE THEM HAPPY.