Yet another tax haven blacklist – this time from the EU, or… hang on a moment… the European Commission said “The list should not be viewed as a central blacklist since the list of 30 names is merely a consolidation of national lists” despite referring to it themselves as the “pan-EU list”.
So what is this EU blacklist?
Each of the 28 EU member states are free to prepare their own blacklists of countries that it views as ‘non cooperative’ on tax matters (in plain English they don’t do enough to stop EU nationals from using them to pay less tax). Where a jurisdiction appears 10 time on a national blacklist it then appears in the ‘consolidated list’ which is put out as ‘official’ thus providing easy targets for the media, and various commentators to vent their spleen against those who don’t pay their ‘fair share of taxes’, whilst no doubt enjoying a sumptuous lunch on expenses. Interestingly at least 5 of the EU black-listers have themselves failed to meet EU tax obligations – it is hard to imagine that the Netherlands, Luxembourg and Ireland would not have appeared on an independently produced blacklist. The UK and Cyprus would also be there.
The most prolific ‘list makers’ are the former Soviet Bloc countries - notably the Baltic’s which do a roaring trade in offshore (read tax free) banking [including Latvia: corporate tax rate 15%, Lithuania 15%, Estonia 20%, and Bulgaria 10%]. Perhaps these territories are hoping that business currently in the BVI might suddenly transfer to them, as their tax rates are considerably lower than the European average.
So what does this list mean and what effect can it have?
Actually, the list means very little and will have very little effect.
Firstly, some of the jurisdictions listed clearly should not be there
(a) Hong Kong, which has a tax rate of 16.5% - in excess of two of the three Baltic’s, Bulgaria, Cyprus and Ireland.
(b) Guernsey that even the EU says should not be on the list due to a misunderstanding by the Polish government of the relationship between Guernsey and its dependencies (Sark and Alderney). We must comment here that in their efforts to grovel to the OECD (and HMG) that the Channel Islands (Jersey, Guernsey etc) will soon be back to cut flowers and potatoes having effectively destroyed their ‘finance centre’ business.
(c) Nauru, which effectively pulled out of the offshore business a decade ago and does not have any banks operating in the country. (Likewise Niue with one bank)
Secondly, it (quite deliberately in our view) attempts to blacken the reputations of the named jurisdictions; it puts the listed jurisdictions on to bank compliance ‘risk’ software. On this point we wonder how the UK might react to being blacklisted for shielding corrupt oligarchs’ ill-gotten gains., or Ireland, Luxembourg and the Netherlands for creating accounting/taxation fictions that have the effect of shielding US multinationals from actually paying any meaningful tax on their European earnings.
Our opinion on the EU blacklist
It seems to us that the governments (of the OECD & EU) want to have their cake and eat it. Free competition when it suits them ... but not when somebody else offer something better, but wasn’t it always so.
A noticeable omission however from the list (below) of jurisdictions is the United Arab Emirates (Dubai and RAK primarily). RAK for example offers entirely tax-free companies (as indeed it might as there are no corporate or personal taxes levied in the Emirates). RAK does not cooperate in exchanging data with the EU or anybody else and, we understand, has no plans to do so. Why therefore does it not appear on the list? Could it be because of oil and the related fact that if the Emirates are sufficiently upset by perceived bullying, they might just sell their oil to non-EU countries? As we all know the Middle East does not take kindly to extra-territorial ‘legislation’ or similar where it affects their interests.
For those readers interested in RAK, further brief information is available at Dragon Registrars , and more detailed information at TMS FZE.
This EU blacklist is just the latest in a long line of attempts by overspending high tax countries to bully and coerce smaller jurisdictions who’s livelihoods depend in part on corporate services and the fact that they see no reason to levy venal and unreasonable taxes on businesses. It is all connected with the ‘initiative’ for ‘greater tax transparency’ (i.e. abolishing privacy) started by the OECD and its offshoot FATF founded in 1999 by the G7 to force tax havens out of business.
What binds FATF, the OECD and the EU together in this case are ‘TIEAs’ (Tax Information Exchange Agreements) which the OECD has decreed (extra territorially) must be signed by each tax haven with at least 12 other (generally high tax) jurisdictions or countries. These agreements generally prohibit ‘fishing expeditions’ (random enquiries) and, unsurprisingly have yielded little in the five to seven years most have been in force. The next phase is or will be automatic exchange of (tax) information. The EU has had practice of this with the EU Savings Directive, adopted in 2003 and in force since 2005 with new regulations coming into force in 2016-17.
The world is becoming smaller and privacy is being eroded. Whereas in the 1950s it was enough to set up a company in Tangier and operate entirely tax free, now careful planning is required to keep the tax man away from your door.
This often means multiple structures involving low tax as well as zero tax jurisdictions and sometimes ‘hiding in plain sight’... for example using tax transparent entities (LLPs etc) with the ownership (and thus dividends) being passed through to tax free companies which themselves do not trade.
For further information please contact James via the Taipan International contact page.
With thanks to the Economist Newspaper from where the inspiration for this blog post emanated.
Table of EU list of ‘non-co-operative’ tax jurisdictions
(The blue highlighted links are jurisdictions we cover, please click on them to be redirected to Dragon-Registrars.com. For tax and structuring information, please visit Taipan-International.com)
Antigua and Barbuda
British Virgin Islands
St Kitts & Nevis
St Vincent & the Grenadines
Turks & Caicos Islands
US Virgin Islands