Last September, the European Commission released a ‘scoreboard’ of 81 non-EU states to help identify countries located outside the EU that enable tax avoidance.
According to industry publication EUobserver, the EC has sent a letter to 92 countries, including UK crown dependencies Jersey, Guernsey and the Isle of Man, warning their respective governments that it is looking at their tax arrangements.
“It should be emphasised that the selection of jurisdictions for the 2017 screening process was based on a set of objective indicators (such as strength of economic ties with the EU, financial activity and stability factors) and that this selection does not prejudge the outcome of this process,” said one version of the letter, seen by the publication.
The EU vowed to draw up a blacklist of tax havens following the revelations in the Panama Papers, an unprecedented leak of 11.5m files from the database of the world’s fourth-biggest offshore law firm, Mossack Fonseca.
The scandal exposed how the rich and famous use offshore havens to hide their wealth from tax authorities.
Tax haven criteria
The blacklist, which is expected to be finalised by the end of the year, will be scored against three criteria; strength of ties with the EU, financial activity and stability.
There are also three risk indicators - transparency, preferential tax regimes and no or zero corporate rate tax.
In recent months, it has been reported that the UK government is fighting to keep Guernsey, Jersey and other British overseas territories off the EU’s planned blacklist of offshore tax havens.
At present, Jersey, Guernsey and the Isle of Man have very low or zero corporate tax rates but all have argued in the past that this does not make them a tax haven.
The list is also expected to include the British overseas territories of Bermuda and the Cayman Islands.
Zero corporation tax
“Member states generally agree that the absence of a corporate tax system, zero or almost zero rate of taxation does not automatically mean that a jurisdiction encourages offshore activities,” an anonymous EU official told the EUobserver.
At a meeting last November, the Economic and Financial Affairs Council (Ecofin) said it was still reviewing whether zero or low corporate tax rates should be included as part of the blacklist criteria.
Former chief minister of Isle of Man, Alan Bell, has previously slammed the blacklist of non-EU tax regimes, saying the move is more to do with the “internal politics of Brussels” than greater transparency.
“Tax rates are matters for national governments and any move to list purely on the basis of tax rates runs counter to the international consensus,” he said when the EU first unveiled the proposal.
EU finance ministers have revealed that to avoid being on the future blacklist, third countries would have to comply with international transparency standards, avoid “preferential tax measures” or rules facilitating “offshore structures”, and implement a global plan against tax avoidance drawn up by the OECD.