U.K. newspaper The Independent has linked the annual review of the EU tax blacklist, and the potential inclusion of Cayman and other offshore territories that were until now left off the list, to the outcome of Brexit negotiations between the European block and the U.K.
Citing separate unnamed sources from Brussels, the British newspaper said, contrary to public statements by the European Commission that the blacklist would follow objective criteria unrelated to Brexit, officials now privately acknowledge the EU may use the tax blacklist as leverage.
In December, the EU Council of Finance Ministers named 17 countries it considers uncooperative in tax matters. Another 47 countries, including the Cayman Islands, were included on a list of countries and territories that had given a firm commitment to remedy any shortcomings by the end of 2018.
According to The Independent, officials said while the U.K. had protected its offshore centers in the past, this would not continue in the future and the EU would “go after them.”
Another unnamed source criticized the position of the British government on its overseas territories as running counter to public opinion in the U.K., which largely condemns tax avoidance by multinationals through these centers.
In response, the chair of the Treasury Select Committee, Nicky Morgan, acknowledged to The Independent that the use of this type leverage is conceivable, especially if trade negotiations were not going well, but it was unlikely if the talks produced positive results.
However, she added, “We certainly don’t want our trade talks to be jeopardized by the action or lack of action by an overseas territory.”
Another unnamed British government source said that the U.K. was at the forefront of fighting tax evasion and avoidance, and supported the EU blacklist.
EU officials will meet in February to discuss potential sanctions for blacklisted countries and evaluate several Caribbean countries that were not assessed because of the damage and disruption caused by last year’s hurricanes Irma and Maria.
In particular, the Turks and Caicos Islands and Anguilla had to address outstanding questions to avoid a blacklisting, the U.K. newspaper noted.
Meanwhile Reuters reported that eight countries will be removed imminently from the blacklist after they gave guarantees they would comply with EU tax rules.
They include Panama, which earlier this week formally signed up to the OECD’s automatic exchange of information program known as the Common Reporting Standard.
The other seven countries that are expected to be removed from the EU blacklist are South Korea, the United Arab Emirates, Barbados, Grenada, Macau, Mongolia and Tunisia, Reuters said.
The Cayman Islands complied with most EU requirements, except certain fair tax rules stipulating that countries should not have tax regimes that facilitate offshore structures which attract profits without real economic activity.
The Cayman Islands government has given guarantees that it will further assess the fair taxation criterion and work with EU officials to address this issue by December 2018.
According to EU documents, this could mean that Cayman will have to introduce as yet undefined “substance requirements” into its legislation.