EU publishes list of non co-operative tax jurisdictions

The EU Council has published its first list of non-co-operative tax jurisdictions (5 December). The list of 17 jurisdictions includes Barbados, Panama, the United Arab Emirates and the Republic of Korea. The publication follows the leaking of the Panama and Paradise Papers, which revealed how individuals and companies shelter their wealth from the tax authorities by using overseas accounts. A ‘grey list’ of 47 countries has also been issued, which include those which have committed to changing their tax rules to meet EU standards on transparency and disclosure, including Jersey, Bermuda, Hong Kong and Switzerland.

‘This list represents substantial progress. 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,’ said EU tax commissioner Pierre Moscovici.

The list does not include eight jurisdictions in the Caribbean hit by hurricanes in the summer of 2017 – Antigua and Barbuda, Anguilla, Bahamas, British Virgin Islands, Dominica, St Kitts and Nevis, Turks and Caicos, and the US Virgin Islands – for which the screening process has been halted until 2018.

When assessing jurisdictions for ‘non-co-operation’, the EU considered three key factors:

• whether the jurisdiction has a reasonable level of transparency, complying with international standards on the automatic exchange of information, and information exchange on request;
• whether the jurisdiction has a harmful tax regime; and
• whether ‘BEPS’ has been implemented. This refers to the Organisation of Economic Co-operation and Development (‘OECD’)’s Base Erosion and Profit Shifting (‘BEPS’) minimum standards, which aim to control the practice whereby multinationals exploit gaps and mismatches in tax rules to shift profits to low- or zero-tax jurisdictions.

Listed jurisdictions cannot be the recipient of EU funds, such as the European Fund for Sustainable Development, the European Fund for Strategic Investment, and the External Lending Mandate. The EU also encourages EU institutions and Member States to take the list of non-co-operative jurisdictions for tax purposes into account in ‘foreign policy, economic relations and development co-operation with the relevant third countries’. Member States may agree on co-ordinated sanctions against the listed jurisdictions, including anti-abuse provisions, more detailed monitoring and audits, withholding taxes and extra documentation requirements.

‘This is a regrettable decision. We feel this is an unfair measure,’ said the President of Panama, Juan Carlos Varela, in response to the listing. Barbados’ Minister of International Business, Donville Inniss also said that his country’s listing is ‘extremely unfortunate and unfair,’ and could have a negative effect on investment into the country.