EU finance ministers to decide on blacklist of tax havens

The Europa building; Photo: European Council

Today, the EU finance ministers will decide which countries might be placed on the EU list of non-cooperative jurisdictions for tax purposes, also known as the blacklist of tax havens.

Countries were informed that they must meet three criteria or promise to reform their systems to comply. They must have fair tax rules (fair taxation), tax transparency and implementing base erosion and profit shifting (BEPS) measures agreed by the Organisation for Economic Cooperation and Development.

BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity. Also, nations should not facilitate offshore structures or give tax breaks to companies with no real presence in their jurisdiction. The jurisdiction should have no preferential tax measures that could be regarded as harmful according to the criteria set out in the Resolution of the Council and the Representatives of the Governments of the Member States.

Serbia, which was among the countries included on the blacklist in the previous draft document on November 21, is now seen as compliant with the EU’s demands for additional commitments, according to the latest Bloomberg article.

The Code of Conduct group could propose to EU finance ministers to add the group of 36 non-compliant countries to a blacklist early in December when next meeting is planned to be. According to the draft summary table which is seen by Bloomberg on November 21, also includes Turkey, Cook Islands, Tunisia, Armenia, Panama and the Marshall Islands.

But, blacklist updated on November 27, does not include Turkey anymore, as stated by Bloomberg. The latest draft of “non-cooperative jurisdictions” includes 29 countries, such as Armenia, Barbados, Jordan, Qatar, Thailand, United Arab Emirates, Morocco, Vietnam and Bahrain, as reported by Bloomberg.

The Code of Conduct Group (Business Taxation) mainly deals with assessing the tax measures which fall within the scope of the code of conduct (adopted in December 1997) for business taxation and overseeing the provision of information on those measures. The Code of Conduct is not a legally binding instrument but its adoption requires the commitment of member states to abolish existing tax measures that constitute harmful tax competition and to refrain from introducing new ones in the future.

Ambassadors representing EU member states will discuss the list at an EU Summit, but even now there is a split over whether financial sanctions should be used against those countries, anyhow inclusion of those countries might result in reputational damage to all of them and stem or even block the investments.

For sure, investors would be more reluctant to put money into these markets if the EU takes such a decision. France is one of the states that support disciplinary measures such as the exclusion from international funding, Bloomberg added.

As Turkey was one of the states that might find a place at the blacklist conforming to a report on November 21, the United Kingdom representatives in the Code of Conduct group, indicated that Turkey is an important partner of the EU, while experts said that any decision to bypass technical criteria for the inclusion can only be taken at a political level, reported Bloomberg according to a participant in the meeting.

Turkish Finance Minister reacted very fast after the first Bloomberg report, saying that Turkey promised that it would complete secondary tax regulations in an attempt to stave off any further EU move.

“It is out of the question for Turkey to be included in the blacklist of tax havens, as there’s no practice that would require the inclusion”, Turkish Finance Minister said.

Additionally, “Turkey fully abides by international tax agreements and backs them. Last week, we wrote a letter to the EU and explained that we were carrying out work on secondary regulations, and promised it would be completed soon”, Reuters quoted him saying.

Earlier this month, EU tax commissioner Pierre Moscovici said that about 50 countries were being screened by the EU to assess whether their rules were sufficiently transparent and did not cause risks of helping tax avoidance. Some of the EU officials stated that they expected the list to have very few names, if any, as some EU countries oppose the blacklist and are against punitive measures for those who are named, as reported by Reuters.