EU to Expand Tax Haven Blacklist & Potentially Include the US

EU to Expand Tax Haven Blacklist & Potentially Include the US

The European Union will welcome the New Year by updating its year-old tax haven blacklist.

According to Bloomberg Tax, the EU will introduce “new criteria and an expanded geographic reach—possibly all the way to the U.S.”

Countries that have failed to sign onto the OECD’s Common Reporting Standard, which forces jurisdictions to annually exchange information from their financial institutions with others, will be placed on this updated blacklist.

The US has not yet agreed to the OECD’s terms and runs the risk of being included.

Discussing the US with Bloomberg Tax, Paul Tang, a Dutch MEP, said, “So far the Trump Administration has not moved to adopt the OECD Common Reporting Standard.”

“We have been assured by the European Commission that if it does not do so by June of next year [2019] the process for it being listed will begin,” he added.

Many believe 2019 will be an important year in determining how to handle the US’s case if they do not follow through and sign onto the OECD’s CRS.

According to US attorney Virginia La Torre Jeker, the US believes it does not need to join CRS because it has implemented FATCA, a purportedly similar reporting program.

However, La Torre Jeker explains, “the intergovernmental agreements (IGAs) put in place by the US with its FATCA signatory countries were not really “reciprocal”.  The IGAs secured the agreement of the foreign countries to collect and send to the US tax authorities, financial information about US persons within their jurisdiction.  On the other hand, the information sent by the US to these signatory countries about their tax subjects has been essentially non-existent.”

New Criteria to Be Rolled Out for Tax Haven Blacklist

New Criteria to Be Rolled Out for Tax Haven Blacklist

Several new criteria will be rolled out in 2019 as part of this updated tax haven blacklist.

As reported by Bloomberg Tax, the EU “will require countries to apply the OECD’s base erosion and profit shifting minimum standard—requiring companies with a $750 million global turnover to report country-by-country tax and profits to national tax authorities.”

Additionally, the EU will work on “new rules to require countries or independent territories to apply transparency standards to publish the beneficial owners of companies.”

An EU diplomat told Bloomberg Tax that “negotiations are ongoing with the beneficial ownership requirement but the idea is to target millions of shell companies based in offshore financial centers.”

Furthermore, reports Bloomberg Tax, the EU will continue working on determining whether or not “countries or jurisdictions with zero corporate tax rates have substantial “economic substance” on the ground to justify the multinational corporations using their territory as a headquarters.”

In light of this latter effort, multiple jurisdictions have moved to establish rules requiring companies registered there to show a physical presence.

According to the BBC, UK Crown Dependencies Guernsey, Jersey and the Isle of Man have implemented “fines of up to £100,000 for so-called brass plate companies that cannot prove they have a sufficient physical presence in the islands.”

BBC’s Rob Byrne additionally reports that “depending on the type of company, tax-resident firms will have to demonstrate they are locally managed, generate income in the islands, and that they have a physical presence in terms of staff, premises and local spending.”

Several Caribbean nations have joined the fray, introducing economic substance rules to avoid being put in the EU’s tax haven blacklist.

For instance, as reported by Cayman Compass, the Cayman Islands passed legislation that calls “Cayman-registered companies active in nine defined areas to demonstrate they have “adequate” economic activity locally to justify the profits they make.”

Ample Criticism Towards the EU’s Tax Haven Blacklist

Ample Criticism Towards the EU’s Tax Haven Blacklist

Many MEPs have criticized the way the EU’s tax haven blacklist has been designed and handled.

Speaking to Bloomberg Tax, Jeppe Kofod, a Danish MEP, said, “So far the process has been an overall failure because the process has been unfair or inconsistent.”

“When we have tax havens within the EU and they are not on the list it makes, it hard to go after others outside the EU,” he added.

Furthermore, Tang said, “We have a situation where the United States does not meet the transparency criteria but the EU member states have decided to ignore that. This goes to show that the process is political.”

This double standard has also been felt outside of the EU.

Jude Scott, Cayman Finance’s CEO, told Bloomberg Tax that “standards of transparency and cross-border cooperation on tax issues can only be considered fair and effective if they apply to all jurisdictions rather than just a targeted few.”

Ultimately, however, maybe nothing will be done vis-à-vis these double standards.

On #TaxTwitter, Rasmus Christensen, a PhD Fellow at Copenhagen Business School, put it best:

“Say it with me, folks:

The EU will NOT blacklist the US as a tax haven
The EU will NOT blacklist the US as a tax haven
The EU will NOT blacklist the US as a tax haven
The EU will NOT blacklist the US as a tax haven
The EU will NOT blacklist the US as a tax haven
The EU will…”

What are your thoughts on these updates to the EU’s tax haven blacklist?

Let us know below!

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