At a meeting of the EU’s Economic and Financial Affairs Council (Ecofin) on Tuesday, European finance ministers agreed on the criteria and the process for creating an EU list of non-cooperative jurisdictions in taxation matters.
Scoreboard
In September, the EC released a ‘scoreboard’ of 81 non-EU states to help identify countries located outside the EU that enable tax avoidance. Those listed will be scored against three criteria; strength of ties with the EU, financial activity and stability.
The document found that in addition to the Channel Islands, the Isle of Man and British overseas territories such as Bermuda and the Cayman Islands, are among the jurisdictions that have a zero rate of corporation tax, which Brussels officials believe should be red-flagged as “unfair taxation”.
On Tuesday, David Gauke, chief secretary to the Treasury, told EU finance ministers that the UK opposed the EC putting territories, such as Guernsey and Jersey, on a list of non-cooperative jurisdictions.
A compromise was struck and no explicit mention of zero rate corporate tax jurisdictions was made.
Ecofin agreed that, in order to be considered compliant on fair taxation, jurisdictions should have “no preferential tax measures that could be regarded as harmful” and “should not facilitate offshore structures of arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction”.
Not ruled out
However, Ecofin’s Code of Conduct Group has been tasked with evaluating the absence of a corporate tax system or applying a nominal corporate tax rate equal to zero or almost zero as a possible indicator.
This suggests that the EU has not completely ruled out the inclusion of zero-rate tax jurisdictions on its tax haven blacklist.
Crown dependency response
Geoff Cook, chief executive of Jersey Finance, said: “This latest stage in the EU’s attempts to create a list of non-cooperative jurisdictions was fully expected.
“From Jersey’s point of view, these latest discussions should give us confidence, with Jersey being extremely well positioned to meet the agreed criteria on tax transparency standards, [Base erosion and profit sharing (BEPS)] and the EU’s code of conduct around business taxation.
“Jersey’s corporate tax environment is simple and fair, and has already been assessed and found to be fully compliant with the EU’s tax code, so we feel well positioned as part of this long -term initiative,” Cook said.
Lyndon Trott, chairman of Guernsey Finance, said: “The decision as to which jurisdictions should be screened has now been passed to the Code of Conduct Group for further consideration.
“However, it seems clear that it will be based on the Commission’s ‘scoreboarding’ exercise and hence will focus on those jurisdictions that are of economic relevance to the EU.
“As such, Guernsey and Jersey are likely to be screened along with up to 86 other third countries, given that we are an important source of investment for the European economy.
“There is no pre-judgement attached to any jurisdiction invited for further screening, the EU has made that point clear. The criteria refer to international tax transparency standards, to the EU Code of Conduct, and to a commitment to BEPS: Guernsey and Jersey amply meet all these criteria.
“Our track record of cooperation speaks for itself,” Trott said.
Timeline
A screening of more than 80 third country jurisdictions, including the crown dependencies, is due to complete by September 2017, with a list of non-cooperative jurisdictions approved by the end of 2017.
