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EU moves to freeze money in tax havens: Is your offshore money on the blacklist?

EDINBURGH — The European Union (EU) appears to be getting tough on tax evasion. It is set to blacklist not far off two-dozen countries and place dozens more under close scrutiny. It is threatening to freeze funds as it fights opaque practices that are eroding tax contributions. It’s not only letter box companies and crooked moneylaunderers that are likely to be caught in the EU tax haven clampdown. Officials have got their collective eye on global giants like Google and Facebook that arbitrage tax systems, getting away with paying minimal tax in countries where they generate huge revenues. With President Donald Trump making it more attractive for multinationals that base themselves in the US by chopping corporate tax, EU moves to toughen up on avoidance could easily add to the incentive for big American businesses to return home. – Jackie Cameron 

By Nikos Chrysoloras, Viktoria Dendrinou and Mark Deen

The European Union is set to agree on a blacklist of tax havens that could potentially face sanctions for failing to bring their standards in line with the bloc, as it seeks to further step up its fight against opaque practices that facilitate avoidance by multinationals and individuals.

The group of jurisdictions is set to be rubber stamped by EU finance ministers at a meeting in Brussels on Tuesday. According to a draft document obtained by Bloomberg, the list includes South Korea, Panama, Tunisia, Bahrain and the United Arab Emirates, as well as Barbados, Samoa, Grenada, Macau, the Marshall Islands, Palau, and St. Lucia.

The final list is the result of months of screening on dozens of countries and territories, and back-and-forths between the 28-country bloc and various jurisdictions around the world. It could still change depending on the ministers’ political decision. As many as 19 countries will be blacklisted, while another 43 could be included in a separate gray list, to be monitored for their compliance with commitments undertaken.

It comes as the EU has stepped up its efforts in recent years to tackle tax avoidance and evasion around the world — plans that have received fresh impetus following leaks such as the recent Paradise papers, which exposed the scale of large-scale tax avoidance and fed public backlash against such practices.

Screening Process

Throughout the past year, experts from the bloc have been screening 92 jurisdictions to identify whether they met the EU’s standards for transparency or whether they engaged in harmful tax practices.

Some of these were deemed cooperative straight away while others, including Turkey, were spared inclusion on the list following multiple commitments to the EU about improving transparency and engaging in fairer competition. A European government official told reporters in Brussels last week that the fact that the final blacklist is much smaller than earlier drafts is a proof that EU pressure brings results, forcing countries to commit to tax transparency.

The European Commission — the EU’s executive arm — believes the threat of being on list itself can act as an incentive for countries to bring their tax systems in line with EU standards, for fear of being named and shamed. The countries which made commitments to tax transparency will be subject to monitoring over the EU coming year, while the bloc plans to be updating the list at least once a year.

But some countries, including France, have said that listed jurisdictions should also face some form of sanction. The ministers are also expected to discuss what kind of countermeasures they could apply at both an EU or national level, including the freezing of some EU funds.

“We want this list to be complete and effective. No state should escape responsibilities when it doesn’t firmly combat tax evasion,” French Finance Minister Bruno Le Maire said on his way into the meeting. “This list needs to be effective, meaning that it needs to allow us to take sanctions so that those who don’t respect rules change their behavior.”

Some of the potential countermeasures outlined in the draft document include measures at an EU level — such as limiting access for listed jurisdictions to the European Fund for Sustainable Development — or measures that countries can take individually, such as reinforced monitoring of transactions, increased audit risks for taxpayers benefiting from the regimes at stake or for those using structure involving these jurisdictions.

Other measures that could be taken at a national level — but which will be at the discretion of each country — include withholding tax measures, non-deductibility of costs and special documentation requirements.

“There’s still a number of countries which entered into commitments as regard to good tax governance and we will be following up those commitments,” European Commission Vice President Valdis Dombrovskis told reporters in Brussels on Tuesday ahead of the meeting. “If countries will be implementing them they won’t be part of the tax list, if we see that countries are not implementing the commitments there is the possibility that they end up on this tax list.”

Facebook and Apple

The ministers are also expected to agree on language concerning how to move ahead with the taxation of digital companies. The EU is stepping up its efforts to ensure that tech giants pay their fair share and better capture their economic activity. But countries have been split on whether this should be dealt with at a global level so as not to give the EU a competitive disadvantage.

“The second subject is the taxation of digital giants such as Amazon, Facebook and Apple,” Le Maire said, adding that the ministers want the commission to make proposals in the spring. “The objective is taxation of digital giants within two years.’

Source: Bloomberg

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