Member states’ broad definition of tax havens raises concerns

Campaigners last Spring built their own tax haven, outside of the European Commission. [Zala Zbogar/ Oxfam Solidarite]

EU finance ministers agreed today (21 February) on criteria that will be used to label tax-free jurisdictions as offshore territories, sparking concerns about the negative impact on EU’s future black-list.

The EU will publish its list of tax havens by the end of the year and the Ecofin Council initially agreed on the criteria for preparing a list of ‘non-cooperative jurisdictions for tax purposes’ last November.

But Britain and Ireland’s opposition to naming territories with 0% tax rate as tax havens forced the member states to agree on a new definition.

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As agreed in November, EU finance ministers insisted today that third countries “should have no preferential tax measures that could be regarded as harmful”, according to the criteria included in the member states’ code of conduct for business taxation.

In terms of tax-free jurisdictions, experts will examine them against the principles included in the member states’ code of conduct on business taxation. The goal is to ensure that foreign regimes fulfil the same principles as the EU territories, in order to level the playing field.

Maltese Finance Minister Edward Scicluna, currently in charge of the Ecofin Council Presidency, argued that member states have to look at various indicators to determine what is an offshore jurisdiction.

“It is wrong to say who is within the line or outside just by looking at the [0%] criteria,” Scicluna told reporters after the meeting.

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In November, the ministers came up with three main criteria to screen jurisdictions. Depending on their transparency, fairness and implementation of global standards (BEPS measures), the member states decided what jurisdictions would be contacted to request amendments or clarifications as regards to their tax systems.

If they still failed to meet the criteria, they would be included in the EU’s blacklist of non-cooperative regimes.

The member states sent letters to 92 jurisdictions, including the US and Switzerland. Scicluna said that more letters could be sent in the future.

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“We want cooperation to ensure they meet the criteria we achieved in the EU,” he added.

But the process of engagement with foreign jurisdictions is secretly handled by the Council’s code of conduct group on business taxation. The Commission defended a public and transparent process.

Critics questioned member states’ reluctance to accept the 0% tax rate as a direct criterion to label a jurisdiction as a tax haven.

“If EU member states are so timid not to immediately blacklist a 0% tax rate jurisdiction as an obvious tax haven, Oxfam is worried that the likes of Bermuda and Bahamas might slip through the net, even though they are front-runners in a dangerous global race to the bottom on corporate tax,” said Oxfam’s tax expert, Aurore Chardonnet.

Green MEP Sven Giegold (Germany) said that “if countries with a tax rate of zero do not appear on the blacklist, it is not worth the paper it’s written on”.

He added that the Council’s code of conduct group in charge of assessing the foreign jurisdictions did not prevent tax dodging within the EU in recent years, as the Luxleaks scandal proved.

Given that this working group meets in closed-door sessions, he lamented that “political in-fighting will take place without public scrutiny” despite the social unrest provoked by the tax scandals revealed over the last two years.

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