EU blacklist of tax havens coming within six months

(CNS Business): A European-wide blacklist of non-cooperative tax jurisdictions is definitely coming and will be announced within six months, according to EU officials. Member of European Parliament (MEP) Jeppe Kofod, who is part of the TAXE2 Committee that a delegation from Cayman recently appeared before, confirmed to CNS Business that an EU blacklist for non-cooperative tax jurisdictions is a priority for the European Commission.

“I am absolutely confident that the European Commission will have to deliver upon this, and that they will have to deliver soon,” Kofod said. “The European Parliament has called for such a list for a long time and Commissioner Moscovici has now committed himself to delivering within a six month time period.”

If Cayman were to be included on such a list, it would be a hammer blow for the financial services industry, which has spent the last few years bending over backwards to implement every OECD initiative required on tax information exchange and transparency, as well as the government striking the recent agreement with the UK on the sharing beneficial ownership information.

Kofod, who is a member of Denmark’s Social Democratic delegation to the European Parliament, said Cayman’s potential inclusion on any EU blacklist would really depend upon its own actions.

“If the Cayman Islands’ authorities comply with OECD requirements, primarily BEPS-criteria (Base Erosion and Profit Shifting) and engage in an open and forthright dialogue with European authorities on access to financial, tax and company related information, then no. If, on the other hand, we do not see sufficient movement and willingness to engage, then the Cayman Islands may very well end up on this list,” he said.

On returning from his recent trip to Brussels and appearance before the European Parliament’s TAXE2 Committee (Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect), Financial Services Minister Wayne Panton had said that the comments from some of the politicians indicated a return to the blacklists of the 1990s, where countries were penalised for their internal tax systems.

Taking aim at tax havens, some MEPs said they believe that a blacklist of uncooperative tax jurisdictions would not be enough to tackle the aggressive tax planning activities highlighted by the Panama Papers leak and have called for measures that go beyond ‘naming and shaming’.

“These leaks show there are still loopholes that need to be clamped down on,” said Stephen Quest, Director-General of the Directorate-General for Taxation and Customs Union at the European Commission. Quest said during the TAXE2 Committee discussions that sanctions against blacklisted countries rarely progressed.

“The first sanction is the public disapproval of being listed, and that’s actually quite effective,” he said.

On the matter of sanctions, Kofod said, “At present, a wealth of different options is being debated, ranging from complete economic, political and diplomatic boycotts to special withholding-taxes on transfers to countries on the blacklist. However, a consensus on the exact sanctions and measures to be applied has yet to be found.”

In response to calls for tougher measures from Europe against jurisdictions considered tax havens, including the threat of sanctions, local industry experts said that any new European-wide blacklist that included the Cayman Islands would have zero credibility.

Paul Byles, offshore industry expert and director of First Regents Bank and Trust, said blacklists in the past were created on the basis of perceived weakness in regulatory or transparency frameworks.

“Given the significant amount of resources invested into improving Cayman’s regime in both areas over the past 15 years, it’s hard to imagine that a new European blacklist could include Cayman with any credibility or objectivity,” he said. “It’s easier to anticipate a blacklist based solely on the fact that countries have low taxes or indirect tax regimes but that would be purely politically motivated.”

Political motivation, however, in the current climate has clearly reached fever pitch, with the Panama Papers following similar leaks from Luxembourg and Switzerland, which MEPs said had focused public attention on the issue.

The TAXE2 Committee discussions take place as EU politicians examine the various measures introduced to crack down on aggressive tax planning and consider what more could be done to tackle the loss of tax revenue, estimated by the European Parliamentary Research Service to cost €50-70 billion each year.

From the Cayman perspective, Byles also noted that despite popular opinion, tax levels in Cayman are actually pretty high, as they are in other countries, taking into account the amount of indirect taxes and fees paid by Cayman residents and companies.

“The larger concern for Cayman is not a possible future blacklist; it’s giving consideration to whether the financial services products that have taken us this far can still provide a sustainable industry and careers for young Caymanians in the longer term, given the increasing pressures on those services,” he said.

Minister Panton had also said that a great deal of time was spent explaining to the committee how Cayman’s system of indirect taxation actually worked, along with what he felt was some misinformation generated by the Tax Justice Network.

Kofod said the TAXE2 Committee was pleased to see that Cayman Islands ultimately decided to present themselves to the committee.

“Dialogue and transparency are key for progress,” he said. “I do understand the tax system, but during the exchange of views it was presented as Cayman Islands´ business model. I don’t look at countries and societies as business models. They are communities of people, not aimed at attracting corporations and definitely not to do so to the detriment of other countries.”

When asked what he thought was the biggest problem with the Cayman Islands, Kofod said in his view it is transparency and cooperation.

“The Cayman Islands need tighter control of the beneficial ownership, keep track of ultimate beneficial owners, and maintain public registers of beneficial ownership of companies and trusts located in the Cayman Islands,” Kofod said.

Since the Panama Papers leak, industry groups in Cayman and in what would be considered to be the other leading offshore centres have gone to great lengths to distance themselves and expound the benefits and major differences in their regulatory systems with Panama.

This credibility gap, however, will still ultimately need to be judged and determined by EU officials in their own analysis of the situation. Furthermore, the recent agreement announced by the Cayman government on sharing of beneficial ownership information applies only to the UK and not to the EU and still doesn’t go far enough to satisfy many European officials.

Kofod said each jurisdiction will have to be judged and assessed on its own merits.

“There is, of course, differences between Panama and the Cayman Islands,” he said. “There is no doubt that the Cayman Islands have moved substantially on this issue in the past years, and I very much welcome any and all movement related to exchange of information on beneficial ownership. However, this information also has to be shared with all 28 EU Member States and made publicly available.”

During the TAXE2 Committee meetings, MEPs also noted the existence of tax havens within the EU itself, and Kofod believes that the EU also needs to get its own house in order.

“Europe is no saint when it comes to tax evasion and imaginative tax schemes,” Kofod stated in the interview. “The ‘double Irish with a Dutch sandwich’-scheme is well known, as is the fact that we have seen some incredible lucrative mechanisms involving patent boxes in a number of EU Member States. These issues have to be tackled as well.”

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