The European Commission has published a list of 30 jurisdictions it has branded ‘non-cooperative’ on tax (see www.bit.ly/1N1ZfxN). Each country on the list, which includes six British overseas territories, was said to be nominated by ten EU member states.
Ross Munro, partner in the investment funds and regulatory department at Harneys, talks about its relevance and says it is no longer an accurate reflection of those countries who partake in questionable tax practices.
How is the blacklist drawn up?
In short, very badly. Even the OECD itself described it as ‘very unfortunate’ that the publication looked like the establishment of a blacklist. Inexplicably, the OECD reports that the EU has confirmed that it did not intend to establish a blacklist, yet the EU’s own communication just a few days earlier described the publication as ‘an EU-wide list of third country non-cooperative tax jurisdictions’. That sounds like a blacklist to me.
When looking at the detail, it is easy to understand why the OCED reached such a damning conclusion. The EU-wide list is in fact nothing more than an aggregation of EU member states’ own tax blacklists. Any jurisdiction which is listed by ten or more member states makes the grade. However, the criteria for being placed on a national blacklist vary widely from one member state to another. Some member states do not maintain blacklists at all as a matter of policy – neither the UK or Germany list any jurisdictions.
A discussion paper published by the EU in October 2014 highlights the other pitfalls of using national blacklists: very few member states conduct a periodical review of their lists. For example, eight member states still list a jurisdiction (Netherland Antilles) which ceased to exist in October 2010. The measures applied to jurisdictions listed also differ from EU state to state, further emphasising the arbitrary nature of aggregating the national lists. Finally, although the EU list was published in June 2015, it was based on an assessment of the national lists as of December 2014.
What does it mean if a jurisdiction is described as a ‘non-cooperative’ tax jurisdiction?
As discussed, presence on the EU list of non-cooperative tax jurisdictions simply means that the jurisdiction appears on ten or more EU member states national tax blacklists – the criteria for which varies significantly. The most avid blacklisters are relatively small financial centres, such as the Baltic states.
Does this have any effect on advisers when considering the advice given to clients?
Appearance on the EU blacklist does not have any direct consequences in itself. However, there are likely to be indirect consequences. Such lists and the associated publicity that goes with them can impact public perception. They can also feed into risk assessments by other jurisdictions and financial institutions that lack the resources to carry out their own detailed assessments of a jurisdiction’s tax governance. In this particular case, the significant shortfalls in the Commission’s process and the widespread criticism from the likes of the OECD should limit the impact.
What are the risks for clients when getting involved with these jurisdictions?
All clients should ensure that their interests comply with relevant legislation and regulation wherever they are conducted. In an age of increasing transparency, clients must be able to understand (or at the very least have trusted advisers that fully understand) the tax consequences of any action they take. That approach applies for any cross border activity, but if the activity is properly managed, the risks are no greater in a reputable offshore jurisdiction than when conducting business in any other jurisdiction.
What effect does the blacklist have on efforts to tackle tax evasion?
There have been many initiatives over the past few years that are making real demonstrable progress in the tackling of tax evasion. The EU’s blacklist is just not one of them. The shortfalls in the process are too great for the list to have any credibility beyond a tabloid headline.
Furthermore, it undermines progress made by the better established and advanced international finance centres, such as the British Virgin Islands, Cayman Islands and the Crown Dependencies, to meet global tax and anti-money laundering standards.
The publication of the Commission list looks particularly self-serving and unfortunate at a time when some EU member states themselves have failed to meet those international standards.
The European Commission has published a list of 30 jurisdictions it has branded ‘non-cooperative’ on tax (see www.bit.ly/1N1ZfxN). Each country on the list, which includes six British overseas territories, was said to be nominated by ten EU member states.
Ross Munro, partner in the investment funds and regulatory department at Harneys, talks about its relevance and says it is no longer an accurate reflection of those countries who partake in questionable tax practices.
How is the blacklist drawn up?
In short, very badly. Even the OECD itself described it as ‘very unfortunate’ that the publication looked like the establishment of a blacklist. Inexplicably, the OECD reports that the EU has confirmed that it did not intend to establish a blacklist, yet the EU’s own communication just a few days earlier described the publication as ‘an EU-wide list of third country non-cooperative tax jurisdictions’. That sounds like a blacklist to me.
When looking at the detail, it is easy to understand why the OCED reached such a damning conclusion. The EU-wide list is in fact nothing more than an aggregation of EU member states’ own tax blacklists. Any jurisdiction which is listed by ten or more member states makes the grade. However, the criteria for being placed on a national blacklist vary widely from one member state to another. Some member states do not maintain blacklists at all as a matter of policy – neither the UK or Germany list any jurisdictions.
A discussion paper published by the EU in October 2014 highlights the other pitfalls of using national blacklists: very few member states conduct a periodical review of their lists. For example, eight member states still list a jurisdiction (Netherland Antilles) which ceased to exist in October 2010. The measures applied to jurisdictions listed also differ from EU state to state, further emphasising the arbitrary nature of aggregating the national lists. Finally, although the EU list was published in June 2015, it was based on an assessment of the national lists as of December 2014.
What does it mean if a jurisdiction is described as a ‘non-cooperative’ tax jurisdiction?
As discussed, presence on the EU list of non-cooperative tax jurisdictions simply means that the jurisdiction appears on ten or more EU member states national tax blacklists – the criteria for which varies significantly. The most avid blacklisters are relatively small financial centres, such as the Baltic states.
Does this have any effect on advisers when considering the advice given to clients?
Appearance on the EU blacklist does not have any direct consequences in itself. However, there are likely to be indirect consequences. Such lists and the associated publicity that goes with them can impact public perception. They can also feed into risk assessments by other jurisdictions and financial institutions that lack the resources to carry out their own detailed assessments of a jurisdiction’s tax governance. In this particular case, the significant shortfalls in the Commission’s process and the widespread criticism from the likes of the OECD should limit the impact.
What are the risks for clients when getting involved with these jurisdictions?
All clients should ensure that their interests comply with relevant legislation and regulation wherever they are conducted. In an age of increasing transparency, clients must be able to understand (or at the very least have trusted advisers that fully understand) the tax consequences of any action they take. That approach applies for any cross border activity, but if the activity is properly managed, the risks are no greater in a reputable offshore jurisdiction than when conducting business in any other jurisdiction.
What effect does the blacklist have on efforts to tackle tax evasion?
There have been many initiatives over the past few years that are making real demonstrable progress in the tackling of tax evasion. The EU’s blacklist is just not one of them. The shortfalls in the process are too great for the list to have any credibility beyond a tabloid headline.
Furthermore, it undermines progress made by the better established and advanced international finance centres, such as the British Virgin Islands, Cayman Islands and the Crown Dependencies, to meet global tax and anti-money laundering standards.
The publication of the Commission list looks particularly self-serving and unfortunate at a time when some EU member states themselves have failed to meet those international standards.
