The European Union expects to draw up a blacklist of tax havens by the end of next month — and potential sanctions are being considered against those on it.
Finance ministers from the 28-country bloc met in Brussels this week and the “Paradise Papers”, a series of global media reports based on documents stolen in a cyberattack on offshore law firm Appleby, was reportedly high on their agenda.
Bloomberg BNA cited “multiple EU diplomats” who asked not to be named, stating that the EU has sent letters to 53 “screened” countries and territories that may violate EU criteria approved in 2016. An EU official quoted in a Reuters report said the final list was expected to name a much smaller number of jurisdictions.
One diplomat told Bloomberg: “The countries that received a letter indicating they risk being on the tax haven blacklist have until November 17 to respond.”
While not explicitly confirming whether Bermuda had received such a letter from the EU, David Burt, the Premier, said last night: “The EU has sent letters to 53 countries requesting clarification as they look to establish a list of ‘non-cooperative jurisdictions for tax purposes’.
“Bermuda is a leader in tax transparency and is the first UK Overseas Territory to automatically exchange ‘Country by Country’ financial information with global tax authorities.
“We have and will continue to cooperate with international organisations to cement our leadership as a co-operative jurisdiction for tax transparency.”
Bermuda has a strong record of signing up to international transparency frameworks. It has tax information exchange agreements with about 100 countries. It has also kept beneficial ownership records for some seven decades, records that are available to foreign tax authorities under the island’s tax transparency agreements.
It has also implemented guidelines to follow the Organisation for Economic Co-operation and Development’s common reporting standard, one of the key transparency requirements of the EU. Conversely, the US has refused to sign up to the CRS. Also, the laws in some US states, such as Nevada and Delaware, allow beneficial owners of companies and trusts to remain anonymous. However, EU sources told Bloomberg BNA that the US will not be considered for the blacklist.
Paul Tang, a Dutch member of the European Parliament, told Bloomberg Tax this exemption for the US was disappointing.
“The US does not fill key transparency criteria,” Mr Tang said. “This goes to show that the process is political. But the relations with the US are already strained so I can imagine there was a decision not to make them worse.”
Bermuda’s record of transparency compliance may not be enough to prevent the island from being “screened” by the EU.
Charging zero corporate tax is not automatically considered to be in breach of the EU criteria. However, if a jurisdiction is seen to be facilitating the creation of shell companies and other structures that could aid tax avoidance, it is likely to be screened.
In June of this year, Bob Richards, then the finance minister, said Bermuda had received a questionnaire from the EU’s Code of Conduct Group, which he said at the time was “designed to lead to a predetermined conclusion that Bermuda is a tax haven that is harmful to the global economy, and the EU in particular, and therefore should be placed on an economic blacklist”.
During the next month the EU will finalise the blacklist and aim to agree on sanctions to be imposed on the jurisdictions named. Sanctions could include withholding taxes, eliminating deductions for royalty payments, or trying to stop countries from receiving aid from organisations like the International Monetary Fund or the World Bank.
As they would relate to a tax matter, sanctions would require the unanimous agreement of all member states.