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EU Updates Tax Havens Blacklist: Eight Jurisdictions Removed Following Commitments

An update regarding the EU’s ‘tax haven blacklist’ has been published in the Official Journal of the European Union. As reported in Regulatory Alert-EU: EU Tax Haven Lists Highlight International Disagreement Over Tax Avoidance: Developing Countries Criticise Double Standards and EU Establishes First Ever Tax Havens Blacklist, While Hong Kong is Placed on a Watchlist, finance ministers from the 28 EU Member States reached an agreement last December on an EU list of non-cooperative tax jurisdictions, otherwise also known as the EU’s first tax havens blacklist.

In total, the ministers had listed 17 jurisdictions, including South Korea and Macao SAR, for failing to meet good governance tax standards. A further ‘greylist’ or ‘watchlist’ targets countries which have committed to addressing deficiencies in their tax systems and to meeting the required criteria which would continue to keep them off the blacklist, following contacts with the EU. The updated lists are available at the Commission’s website.

The EU had hoped that the lists would encourage “good governance around the world [and] maximise preventive efforts against fraud and tax evasion”. The response, however, has been less than positive. Many developing countries and NGOs criticised what they saw as a hypocritical methodology. They claimed that a number of EU jurisdictions would have themselves fallen foul of the criteria used to assess non-EU jurisdictions. The lists specifically excluded EU Member States and their dependencies.

Following negotiations, eight jurisdictions have now been moved from the ‘blacklist’ to the ‘greylist’. They are Barbados, Grenada, South Korea, Macao SAR, Mongolia, Panama, Tunisia and the UAE. As part of the ‘greylisting’ procedure, the EU has grouped the jurisdictions according to the kind of commitments made. All except UAE and Mongolia, for example, join the 24 other jurisdictions (including Hong Kong) which have already committed to “amend or abolish [ …] harmful tax regimes” by the end of 2018. Other commitments include undertakings to improve fiscal transparency by signing the Multilateral Competent Authority Agreement and the OECD Multilateral Convention on Mutual Administrative Assistance.

During the recent World Economic Forum at Davos, Switzerland, EU Commissioner for Economic Affairs Pierre Moscovici lamented the lack of transparency surrounding the commitments made by ‘blacklisted’ countries. He identified three key elements for the credibility of the system: transparency, sanctions and a strong screening process. Of particular concern is the content of commitments made by countries in order to be removed from the ‘blacklist’. EU Member States are ultimately responsible for negotiating these commitments, which typically include a confidentiality agreement. Commissioner Moscovici noted that public opinion was firmly in favour of a more transparent approach to international tax agreements. He called EU Member States to take the lead, saying “the credibility of the listing process is at stake”.

Meanwhile, Commissioner Moscovici also indicated that he will soon propose a digital tax at EU level. This takes place in the context of efforts to introduce a Common Consolidated Corporate Tax Base (CCCTB) throughout the EU.

The Commissioner said that the discrepancy in effective taxation rates imposed on digital and traditional companies was approximately 14 percentage points (9% and 23% respectively). He observed that efforts to create a more level playing field were consistent with the OECD’s policy on Base Erosion and Profit Shifting (BEPS). Responding to fears of tax competition, he said that there was no reason why a common EU taxation system could not be both pro-business and “pro-fairness”.

The OECD has, however, expressed reservations, and it is likely that the proposal will receive a tepid reception from some EU Member States. While the Commissioner noted some room for “convergence” from the larger Member States, he accepted that the process of negotiation would be long and uncertain.

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