EU moves ahead with “blacklist” screening process

European Union member states sent letters to 92 countries to inform them that they will be “screened” with a view to inclusion on a future “blacklist” of “jurisdictions refusing to comply with good tax governance standards”. The EU is to prepare a definitive list of tax havens by the end of 2017.

The EU Code of Conduct Group is coordinating the screening process for Business Taxation. Countries were judged according to three risk factors for poor tax governance: transparency and information exchange, the existence of preferential tax regimes, and a zero-rated or non-existing corporate tax rate.

Countries that apply zero tax rates will not automatically be considered a tax haven. A tax rate of zero will merely serve as an “indicator” that a closer look is warranted at a jurisdiction’s taxation rules.

The 92 countries include the US and Switzerland, as well as a large number of offshore finance centres such as Bermuda, the Bahamas, the Cayman Islands, Jersey, Guernsey and the Isle of Man.

“Being listed for tax purposes by the EU is supposed to have already per se a deterrent effect since this would very likely entail potential consequences in terms of international reputation,” according to a confidential document obtained by Bloomberg. However, it adds that “member states have asked for concrete, specific and direct countermeasures linked to listed jurisdictions.”

Sanctions under consideration by the EU Code of Conduct Group include: withholding taxes; elimination of payment deductions, such as royalties; restrictions via new EU rules for controlled foreign corporations; and elimination of the participation exemption rule.