Understanding EU blacklists and tax havens
24 May 2018

New European Parliamentary research has outlined the bloc’s new system of blacklisting countries considered to be non-cooperative jurisdictions on tax matters, and explains some of the thinking behind the listing of tax havens.

Although there is ‘no single definition of a tax haven,’ there are a number of commonalities in the various concepts used, according to the study from the European Parliamentary Research Service.

“The terms tax haven, offshore financial centre, and secrecy jurisdiction describe jurisdictions that feature distinctive characteristics such as low or zero taxation, fictitious residences (with no bearing on reality) and tax secrecy.

“Each of them puts the focus on a different feature: the foreign location for offshore centres, and the anonymity or non-disclosure of financial dealings and ownership of assets, in the case of secrecy jurisdictions.”

Jurisdictions considered to be tax havens usually refute the label, insisting that their structures are compliant with global regulatory standards.

The report, titled Listing of tax havens by the EU, however, states: “One might ask why establishing a list of tax havens or high-risk countries is useful … however tax havens are referred to, they all have one thing in common: they make it possible to escape taxation.

“In the EU, the process of adopting a common list of non-cooperative tax jurisdictions, which is also central to determining whether a third country presents a high risk in relation to money-laundering, was initiated as part of efforts to further good tax governance, and its external dimension.”

New EU blacklists’ brief history

The study traces the national black/white listing processes inside the EU from 2015, which aimed to identify jurisdictions appearing on at least 10 national lists.

Then in 2016, the establishment of a list of non-cooperative tax jurisdictions (tax havens) was presented in the European Commission’s anti-tax-avoidance package.

“A three-step process was established for drawing up a common list of tax jurisdictions which do not meet some of the criteria identified as essential for not being considered a tax haven,” the study explains, adding that the criteria set out in the external strategy relate to three main aspects for tax:

  • Transparency: through compliance with the international standards on automatic exchange of information (AEOI) and exchange of information on request (EOIR), and checking if a jurisdiction has ratified the multilateral convention;
  • Fair Tax Competition: assessing the existence of harmful tax regimes, contrary to the Code of Conduct principles or the OECD’s Forum on Harmful Tax Practices;
  • BEPS implementation: participation in the Inclusive Framework.

The Commission communication also included the level of corporate taxation (low or close-to-zero- rate on corporate tax).

Blacklist and greylist launched

On 5 December 2017, the Council of the EU adopted the first EU list of non-cooperative jurisdictions for tax purposes – dubbed the blacklist – or Annex 1.

The list comprised 17 jurisdictions outside the EU that it considered to be ‘non-cooperative in tax matters.’

Another 48 jurisdictions were put on a watch list – dubbed the grey list or Annex 2 – meaning that their commitments on meeting the EU criteria were deemed sufficient, but their implementation would be closely monitored by the EU.

“[Also] eight Caribbean region jurisdictions were given more time (until the end of 2018) before they are screened, because of the disruption caused by the September 2017 hurricane,” the research notes.

Since December, the lists have been updated alongside ongoing commitments made by the third countries.

In January 2018, eight third countries were deleted from the blacklist, and moved to the watch list.

In March 2018, the Council modified the lists, after assessing countries placed on the ‘hurricane list’. It added three to the blacklist, and five to the grey list.

“It was also decided that four jurisdictions initially placed on the non-cooperative jurisdictions for tax purposes lists should be moved to the watch list.

“The consolidated version currently shows nine third countries on the list of non-cooperative jurisdictions for tax purposes,” said the study, which was authored by Cécile Remeur, and published on 14 May 2018.

KYC360 EU tax blacklist timeline

December 2017

The new tax blacklist – annex I- was launched and comprised 17 countries, including American Samoa, Bahrain, Barbados, Grenada, Guam, South Korea, Macau, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and United Arab Emirates.

The grey list/watch list – or annex II – included the following: Andorra, Armenia, Aruba, Belize, Botswana, Cabo Verde, Cook Islands, Curacao, Fiji, Hong Kong SAR, Jordan, Liechtenstein, Maldives, Mauritius, Morocco, Saint Vincent and the Grenadines, San Marino, Seychelles, Switzerland, Taiwan, Thailand, Turkey, Uruguay and Vietnam.

January 2018

The following eight third countries were deleted from the blacklist, and moved to the grey list: Barbados, Grenada, the Republic of Korea, Macao SAR, Mongolia, Panama, Tunisia and the United Arab Emirates.

“A delisting was justified in the light of an expert assessment of the commitments made by these jurisdictions to address deficiencies identified by the EU. In each case, the commitments were backed by letters signed at a high political level,” the Council said.

March 2018

The Council removed Bahrain, the Marshall Islands and Saint Lucia from the blacklist to the grey list.

“Since the list was first published on 5 December 2017, Bahrain, the Marshall Islands and Saint Lucia have made commitments at a high political level to remedy EU concerns. In the light of an expert assessment of those commitments, the Council decided to move the three jurisdictions from annex I to annex II,” the Council said in a statement.

It also decided to add Anguilla, Antigua and Barbuda, the British Virgin Islands and Dominica to the grey list.

Meanwhile, the Bahamas, Saint Kitts and Nevis and the US Virgin Islands were added onto the blacklist, as “they have failed to make commitments at a high political level in response to all of the EU’s concerns.”

“When it first published the list, the Council agreed to put on hold a screening of the tax systems of Caribbean jurisdictions that were struck by hurricanes in September 2017. The process was restarted in January 2018, when letters were sent requesting commitments to remedy EU concerns,” the Council explained.

“The Bahamas, Saint Kitts and Nevis and the US Virgin Islands are added to the list (annex I) as a result of that process. This is because they have failed to make commitments at a high political level in response to all of the EU’s concerns.

At the same time, the Council decided to add Anguilla, Antigua and Barbuda, the British Virgin Islands and Dominicato annex II, saying “This was justified by commitments made to address deficiencies identified by the EU. Those commitments were assessed by EU experts, and their implementation will be carefully monitored.”

“The process continues with regard to an eighth Caribbean jurisdiction, the Turks and Caicos Islands, from which a commitment at a high political level is being sought by 31 March 2018 to address EU concerns.”

EU criticised over its blacklists

Soon after the blacklists’ roll-out and sudden downsizing – it was halved in January 2018, a month after its December 2017 launch – European parliamentarians said they disapproved the bloc’s screening and selection process, and called for ‘redress.’

The lawmakers are part of TAXE 3, the EU’s committee formed to investigate the Paradise Papers, VAT fraud and other issues.

German MEP Sven Giegold said: “The EU’s new blacklist of tax havens lacks credibility and transparency. We will demand unrestricted access to all documents concerning the review of third countries. We will examine whether some countries or territories have received unjustified special treatment.”

“We must also closely monitor the creation of the EU’s tightened blacklist of non-cooperative money laundering territories. The mistakes of the blacklist of EU tax havens must not be repeated. It is totally unacceptable that the EU’s blacklists lack the most important shadow financial institutions.”

Read more:

EU method of drafting tax blacklists to be investigated

Confessions of a compliance officer: Do you trust overseas colleagues’ KYC work? Guess what …

EU Sixth Anti-Money Laundering Directive (6AMLD) – Expert analysis

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