The EU has not blacklisted the Cayman Islands as uncooperative in tax matters. But Cayman’s inclusion on a graylist of countries that have promised to address certain deficiencies by the end of 2018 leaves the Cayman government in the difficult position of not knowing what exactly it has committed to.
For Tim Ridley, the former chairman of the Cayman Islands Monetary Authority, it is thus only short-term relief that Cayman is not on the blacklist.
“Politically, the EU could not allow the Crown Dependencies and Overseas Territories to go unscathed. The result is the resurrection of the graylist,” he said. “We now have to wrestle with the devil of the details, i.e., what exactly does Cayman have to do to get off the graylist and is that a price we should pay? This is the continuing challenge for our government in this unending saga.”
The EU Council has made clear that the list is not a one-off. Toomas Tõniste, minister for finance of Estonia, which currently holds the EU Council presidency, said the EU will regularly review and update the list in the years to come. “Our aim is to ensure that good tax governance becomes the new norm,” he said.
EU Commissioner Pierre Moscovici said the EU blacklist represents substantial progress. However, he left little doubt that it is only the beginning of a process that will put more pressure on offshore financial centers.
“Its very existence is an important step forward. But because it is the first EU list, it remains an insufficient response to the scale of tax evasion worldwide,” he said.
“I therefore call on the finance ministers to avoid any naivety on commitments. The countries that have taken commitments must change their tax laws as soon as possible. I also call on ministers to agree quickly on dissuasive national sanctions. We must do everything we can to keep up the pressure on all of these countries. We must not accept unfair tax competition and opacity.”
Countries that are not on the blacklist, he said, “will only be fully off the hook once they have fulfilled their commitments.”
The former French minister for the economy demanded a clear timeline for follow-up. “Tax havens must not slip off Europe’s radar screen,” he said. “As a European citizen, I share the expectations of those who hoped for more. I say to them, let us take this list for what it is: a first step. And let us keep up the pressure together, on the member states and on third countries.”
Anthony Travers, senior partner at Travers Thorp Alberga, said in an email, “Mr. Moscovici … and his lists of whatever color lack any integrity insofar as they seek to rely on the highly artificial suggestion that tax competition is ‘harmful.’”
He said the EU ignores that regardless where international investors want to invest, they want to utilize the Cayman Islands in a tax-neutral manner to facilitate that investment.
“In no sense can Cayman Islands structuring be regarded as harmful; taxes are paid in the jurisdictions where the profits are made. What is irritating Mr. Moscovici is that those jurisdictions include the City of London and the United States, which is leading the way in tax competition, and not the EU.”
Mr. Travers further criticized that the new EU lists make no reference to the EU jurisdictions “where tax avoidance is actually undertaken by abusing OECD-designed double tax treaties in Ireland, Luxembourg and the Netherlands.”
He said, “The lists have no intellectual or technical validity and withstand no scrutiny.”
To the extent that EU member jurisdictions follow the EU guidance and introduce measures that would distort capital flows to the Cayman Islands, he recommended that the response of the Cayman Islands government should be to review tax transparency arrangements with the EU jurisdictions in question. “Mr. Moscovici and the OECD cannot eat their cake and have it,” he said.
Dan Mitchell, member of the Cayman Financial Review editorial board, also took aim at the selection process employed by the EU.
“Using dodgy, non-transparent methodology, the European Commission launched a new attack on tax competition in hopes of propping up the grim finances of its member states,” he said. “The decision to graylist the Cayman Islands is another sign that the goal posts are about to be moved once again.”
Former CIMA board member Richard Rahn added the EU blacklist of so called “tax havens” is nothing more than another attempt “by the cartel of high-tax, low-growth European countries to blame their own failed economic policies” on smaller and largely defenseless jurisdictions.
“Putting Cayman and others on a ‘gray’ list merely shows the hypocrisy of the European bullies who ignore the fact that Cayman engages in considerable information sharing while real tax havens like the U.S. share little,” he said.