EU Commission commences work on tax blacklist

The European Commission has launched the process of establishing the first common EU list of non-cooperative tax jurisdictions by releasing a pre-assessment scoreboard.

Cayman is included in a list of countries that rank high in all criteria selected by the EU Commission. These include the strength of the economic ties with the EU, the magnitude of financial activity in the jurisdiction and stability factors indicating whether a jurisdiction would be considered by tax avoiders, as well as corruption and regulatory quality.

A basic assessment of the risk that these economically relevant jurisdictions could be used for facilitating tax avoidance shows that tax transparency and preferential tax regimes are not risk factors associated with the Cayman Islands by the EU Commission. However, Cayman’s lack of corporate income taxes is considered a risk indicator in the assessment.

Over the next months, EU member states will decide based on the scoreboard which countries should be screened in more detail to “accurately pinpoint the countries which do not play by the rules when it comes to taxation,” the EU Commission said in a statement.

The aim is to publish the definitive list of non-cooperative jurisdictions by the end of 2017.

Pierre Moscovici, commissioner for Economic and Financial Affairs, Taxation and Customs, said the EU takes its international tax good governance commitments seriously. “It is reasonable for us to expect the same from our international partners. We want to have fair and open discussions with our partners on tax issues that concern us all in the global community. The EU list will be our tool to deal with third countries that refuse to play fair.”

The common EU list aims to replace a patchwork of national tax blacklists and should carry more weight “when dealing with non-EU countries that refuse to comply with international tax good governance standards,” the Commission said.

The list will also prevent aggressive tax planners from abusing mismatches between the different national systems, the statement added.

The tax blacklist is only one of many regulatory initiatives that pose a challenge for the Cayman Islands financial services industry.

In July, the European Securities Markets Association deferred its recommendation on whether the Cayman Islands should be granted a third-country passport under the EU Alternative Investment Fund Managers Directive. ESMA said it could not provide any advice until an AIFMD-like regime has been implemented by the Cayman Islands, the Cayman Islands Monetary Authority has the power to impose administrative fines for breaches of regulatory laws, and a macro-prudential policy framework has been put in place by CIMA.

The legislative amendments necessary to address these points are part of a series of financial services bills that are expected to be passed into law by the Legislative Assembly later this year or early in 2017. The proposed legal changes are also required in preparation for the upcoming inspection by the Caribbean Financial Action Task Force, which will assess Cayman’s anti-money laundering regime in 2017.

The EU Commission claims the pre-assessment for the tax blacklist is based on neutral and objective indicators, including economic data, financial activity, institutional and legal structures and basic tax good governance standards, but it would not represent any judgment of the countries nor does it constitute a preliminary list.

The EU will work closely with the Organisation for Economic Co-operation and Development during the listing process, and will take into account the OECD’s assessment of transparency standards in the respective countries.

The results of the pre-assessment were presented to EU member state experts in the Council Code of Conduct Group on Business Taxation on Sept. 14. Based on the scoreboard, the Code of Conduct Group will decide on the relevant jurisdictions to screen, which should be endorsed by finance ministers before the end of the year.

The new EU listing process is part of the EU’s campaign to clamp down on tax evasion and tax avoidance and promote fairer taxation both within the EU and globally. It was proposed by the Commission in the External Strategy for Effective Taxation in January and endorsed by EU finance ministers in May. The European Parliament has also repeatedly expressed support for an EU listing process.


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