The European Union has completed its first ever list of noncooperative tax jurisdictions. The so-called blacklist document identifies 17 countries for failing to meet agreed tax good governance standards. In addition, 47 other “gray” listed countries have committed to addressing deficiencies in their tax systems and to meeting the required criteria, following contacts with the European Union. The EU document addresses commitments taken by the screened tax jurisdictions to address issues identified with respect to transparency, fair taxation, and anti-base erosion and profit shifting (BEPS) measures.
The EU tax blacklist includes the following tax jurisdictions: American Samoa, Bahrain, Barbados, Grenada, Guam, South Korea, Macau, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia, and United Arab Emirates.
The European Commission announced that this unprecedented exercise should raise the level of tax good governance globally and help prevent the large-scale tax abuse exposed in recent scandals such as the “Paradise Papers.”
According to an updated Federation of European Risk Management Associations (FERMA) news report:
This first list is also the result of long diplomatic discussions and a continuing process, the first drafts contained 50 countries, now it excludes a number of British Overseas Territories such as the Cayman Island and Bermuda that were on a previous EU draft from June 2015.
Blacklisted countries could lose access to EU funds. Member states will be authorized to take defensive counter-measures and the Council will determine exactly which types of sanctions will be possible. It is also likely that scrutiny from tax administrations will increase for individuals and companies having tax connections with one of the 17 countries.
Multinationals will have to be very vigilant on the final content of this future list and the location of their activities, not only as a matter of compliance but also reputation.
Pierre Moscovici, EU commissioner for Economic and Financial Affairs, Taxation, and Customs, said, “The adoption of the first ever EU blacklist of tax havens marks a key victory for transparency and fairness.”
Mr. Moscovici continued, “But the process does not stop here. We must intensify the pressure on listed countries to change their ways. Blacklisted jurisdictions must face consequences in the form of dissuasive sanctions, while those that have made commitments must follow up on them quickly and credibly. There must be no naivety: promises must be turned into actions. No one must get a free pass.”
BEPS and Captives
The EU document identifies over 20 jurisdictions committed to becoming members of the Inclusive Framework or committed to implementing BEPS minimum standards.
As stated on the Organization for Economic Cooperation and Development (OECD) website, “BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the inclusive framework, over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS.”
In its final reports, the OECD referenced captives as a potential source of BEPS and subsequently, on June 20, 2017, FERMA released proposed guidelines for captive re/insurance arrangements in order to ensure a consistent implementation of the OECD recommendations on BEPS.
Bermuda and Cayman
Under the fair taxation category, the EU document said that by the end of 2018, five jurisdictions, including Bermuda and Cayman, have committed to addressing “economic substance concerns” surrounding “tax regimes that facilitate offshore structures which attract profits without real economic activity.”
As quoted by the Royal Gazette in a Dec. 5, 2017, article by Jonathan Bell, “Burt: EU Affirms Bermuda’s Tax Compliance,” Ross Webber, chief executive officer of the Bermuda Business Development Agency, said, “Given Bermuda’s strong record on transparency, compliance and co-operation, it’s the result we expected. We’ll continue to monitor the situation and in the interim, we’ll continue to promote Bermuda as the elite, unique jurisdiction it is. We’ll also continue to drive home the message that Bermuda is different.”
Also quoted by the Royal Gazette, David Burt, the premier and minister of finance for Bermuda, said, “Bermuda is not a place to hide money, given its Common Reporting Standard and Country by Country automatic reporting regimes and membership in the OECD Inclusive Framework on [BEPS].
“Any legitimate tax authority can request and receive information from Bermuda, under 100-plus tax-transparency relationships pursuant to the OECD multilateral tax treaty, and more than 40 bilateral Tax Information Exchange Agreements.”
The Insurance Managers Association of Cayman released a statement on the matter saying that the Cayman Islands continues to support global efforts to tackle corruption, tax evasion, and money laundering.
Erin Brosnihan, chair of the Insurance Managers Association of Cayman, said, “The outcome of this decision further promotes our message that Cayman is one of the best jurisdictions for insurance company formation and management in the world. We will continue our mission to be at the forefront of innovation and expertise to implement a strong, transparent and trustworthy framework for people to do business.”
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