On 12 March 2019, the European Commission (‘EC’) published its latest list of non-cooperative tax jurisdictions, adding ten jurisdictions to the five already on its list.
The list, often called a ‘blacklist’, is composed of countries that either failed to deliver on their commitments to comply with the European Union’s (‘EU’) required good governance criteria, or did not commit to do so at all. The Cayman Islands was not one of the countries added and was recognised as having taken many positive steps to comply with the EU listing process requirements.
Which countries were added to the list?
Five countries were already on the list and the EU categorised them as having made no commitment to address the EU’s concerns. These included jurisdictions such as Barbados. Bermuda was among the ten countries which were added to the list, with the EU categorising them as not having delivered their commitment on time.
Is the EU looking to add other countries?
In making its blacklist the EU considered 92 jurisdictions, which were tested against internationally recognised good governance criteria. The countries that were ultimately blacklisted were those that it assessed had failed to make a high-level commitment to comply with the agreed good governance standards by a set deadline (generally the end of 2018).
Why does the EU produce a blacklist?
The EU blacklist was conceived in the EU Commission's 2016 External Strategy for Effective Taxation as a way for EU Member States collectively to tackle what it considered external risks of tax abuse and unfair tax competition. The EU list of non-cooperative tax jurisdictions is composed of countries that either failed to deliver on their commitments to comply with required good governance criteria, or did not commit to do so at all.
Is the process working?
The aim is to raise the standards of tax good governance globally, both through the positive changes introduced by non-EU countries and to use the list to influence international criteria for zero-tax countries. According to Pierre Moscovici, the Commissioner for Economic and Financial Affairs, Taxation and Customs “We are raising the bar of tax good governance globally and cutting out the opportunities for tax abuse." During the last year, the EU notes that many jurisdictions implemented concrete measures to fix problems it identified in their tax systems, 60 countries took action on the EC's concerns and over 100 harmful regimes were eliminated.
What sanctions will apply to the blacklisted countries?
EU Member States agreed on sanctions to apply at national level against those countries which appear on the blacklist. These include measures such as increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. Funds from various EU bodies will not be able to be channelled through entities in countries which appear on the blacklist (see the EU list is now linked to EU funding). The EU is also now linking the blacklist to its other relevant legislative proposals, such as new EU transparency requirements for intermediaries which mean a tax scheme routed through a blacklisted country will be automatically reportable to tax authorities. The EU’s public Country-by-Country reporting proposal also includes stricter reporting requirements for multinationals with activities in jurisdictions which appear on the blacklist..
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