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EU Council Agrees on Criteria for Screening of Third Countries with a View to Adopting a Common EU List of Tax Havens

On 8 November 2016, the EU Council of Ministers for Economic and Financial Affairs, or “Ecofin”, agreed on the broad lines of the criteria to be applied for the screening and selection of third countries for the purpose of establishing a common EU list of non-cooperative third countries in taxation matters.

By way of background (and as reported in Regulatory Alert: European Commission Completes First Step in the Three-Step Process for the Adoption of a Common EU List of Third Country Tax Havens), in September 2016 the European Commission launched the process for the adoption of a common EU list of “non-cooperative tax jurisdictions”, i.e. a list of third countries that are felt not to respect good tax governance principles and as a result facilitate tax avoidance to the detriment of the tax base of the EU Member States. Being listed on a common EU list of tax havens may have implications for bilateral investment. Consequently, it is considered that third countries will have a good incentive to address any of the EU’s good tax governance concerns in order to avoid being put on this list.

As the first step for the adoption of the common EU list of tax havens, the Commission on 14 September 2016 unveiled a “Scoreboard” of third countries whose tax policies may facilitate tax avoidance. Hong Kong SAR is included in Table I of the Scoreboard, which means that it is among those jurisdictions that the Commission deems necessary to screen further in order to decide whether it should be included in the common EU list of non-cooperative tax jurisdictions.

The second step of the process will consist in the screening of the relevant third countries, which will be carried out by the European Commission in cooperation with Member State experts.

The Council has now agreed on:

  • the criteria to be applied for the screening of third countries, and
  • guidelines on the process for screening and selecting third countries.

Based on these screening criteria and guidelines, the European Commission will henceforth start analysing various third countries in order to decide whether or not they should be included in the common EU list of tax havens. As Hong Kong SAR is included in Table I of the Scoreboard, it may be screened and selected for inclusion in the common EU blacklist.

However, the screening process will include a dialogue with the third countries at issue, so as to allow them to react to and address the concerns raised by the Commission. An initial list of uncooperative states will then be drawn up, but the final common EU blacklist will not be published until negotiations with these countries have been carried out. Third countries which have refused to cooperate or engage with the EU regarding good tax governance concerns will be put on the common EU blacklist of tax havens.

The current President of the EU Council, the Slovak minister for finance Peter Kažimír, stated on 8 November 2016 that “[A] dialogue will start with those countries that fail to comply with the criteria we have established, and only those jurisdictions refusing to cooperate and fulfil the criteria in due time will be placed on the so-called blacklist. Our primary goal is to incentivise, not to punish.”

The screening process is due to be completed by September 2017, so that the Council can endorse the final list of non-cooperative jurisdictions by the end of 2017.

Whilst the initiative to establish a common EU blacklist of tax havens has been broadly welcomed, several NGOs have already criticised a number of shortcomings.  One point of criticism is the fact that the blacklist will only include third countries and no EU countries, so that it will not help improve the situation within the EU.

The NGO “Oxfam” has identified, in its view, several EU Member States as tax havens, such as the Netherlands, Belgium, Ireland and Luxembourg.  In addition, it has been criticised that some of the EU’s close partners, including Switzerland and the United States, have questionable tax regimes, but that, for political reasons, these countries are unlikely to be included on the final EU blacklist.

Content provided by Picture: HKTDC Research
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