The United States faces being put on the European Union tax blacklist if it does not agree by June 2019 to exchange the details of foreign bank account holders in the U.S. with tax authorities in their respective home jurisdictions under the so-called OECD Common Reporting Standard.
Valere Moutarlier, the EU Commission’s head of direct taxation and tax cooperation, told a tax investigations committee of the European Parliament on May 15 that the EU’s transparency criteria are clear in that “the June 2019 deadline must be respected.”
The EU has drawn up a list based on tax information exchange and fair tax criteria that non-EU countries have to meet to avoid potential punitive measures.
Mr. Moutarlier alluded to a change in the methodology which takes effect in June next year. Until then, countries can avoid a blacklisting when they meet at least two out of three transparency criteria. These consist of committing to the common reporting standard; being rated “largely compliant” by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes; and having signed up to the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
The U.S. is not participating in the common reporting standard because it claims that it is providing tax information under its own Foreign Account Tax Compliance Act. However, this possibility exists only on paper and is unlikely to be implemented in practice.
Responding to EU lawmakers asking why the U.S. is not already blacklisted, Mr. Moutarlier said it is clear that several U.S. dependencies do not meet EU criteria and as a result feature on the black or gray list published by the EU in December 2017. In addition, the EU Commission’s tax director said last December’s U.S. tax reform “reopens certain questions about the new regime and harmful tax practices.”
He noted that the chair of the council of EU finance ministers had written to the OECD asking the Forum on Harmful Tax Practices to make sure that the U.S. tax reform would be screened as to whether it represents harmful tax practices. This evaluation will take place later this year.
After the Bahamas and St. Kitts & Nevis were removed from the EU blacklist in May, the only jurisdictions left on the list are American Samoa, Guam, Namibia, Palau, Samoa, Trinidad and Tobago and the U.S. Virgin Islands.
Mr. Moutarlier denied that the small number of countries listed as uncooperative in tax matters is an indication that the list was not working.
He said it is very important to note in this first year of the exercise that “gray listed countries have not escaped anything.”
Gray listed countries, which include the Cayman Islands, avoided a blacklisting and potential penalties, by committing to remedy, before the end of this year, certain shortcomings in their tax systems identified by the EU.
“The jury is still out to see how much of this commitment will be honored,” he said. “We are dealing [with] and monitoring the situation of 92 jurisdictions.”
The EU tax list is a dynamic process and criteria will evolve over time. It is planned to introduce, at a later stage, a fourth criterion dealing with beneficial ownership with a view to exchanging this type of information globally.
Mr. Moutarlier said the EU is in the process of drawing up defensive measures to penalize countries on the EU blacklist but admitted “there is still some way to go before the member states reach this goal.”
He said, “The threat of repercussion should translate into real action of jurisdictions that do not deliver on their commitment.”
So far, the EU has only passed legislation that does not permit EU financial assistance for projects “prone to tax avoidance.”