December 6, 2023

EU Releases Blacklist: Another Battle Brewing for Caribbean Offshore Jurisdictions?

Alicia Nicholls

Small states of the Caribbean, which leverage their competitive advantage as low tax jurisdictions to attract international business, are no strangers to the “tax haven” smear. However, the European Commission’s release of a ‘naming and shaming’ list of 30 countries, including 14 Caribbean countries, which its member states view as uncooperative in tax matters (a polite term for “tax haven”), arguably came straight out of left field as we say in our local parlance.

The list was published in tandem with the Commission’s “Action Plan for Fair and Efficient Corporate Taxation”, part of the EU’s crackdown on companies which seek to avoid paying taxes in the EU by diverting their profits to offshore jurisdictions. The catalyst for the European Commission’s crackdown was the Luxembourg Leaks “Luxleaks” scandal in which thousands of leaked documents revealed the millions of dollars major multinational companies were able to save in taxes through tax deals with the Government of the Duchy of Luxembourg. The Commission’s first response was a Tax Transparency Package, a series of transparency measures aiming to boost tax transparency, including a proposed requirement for member states to automatically exchange information about their tax rulings.

In his speech “Corporate Taxation Action Plan”, Commissioner with responsibility for tax, Pierre Moscovini, noted the aim was “to push non-cooperative non-EU jurisdictions to be more cooperative and to adopt international standards, agreed at G20 level for example.” He further stated it was their hope “that all of these jurisdictions will soon adopt the agreed international standards, in particular the exchange of information, to fight against tax evasion. Some have already done so.”

This action by the EU raises several questions, least of which is why have these states been targeted? Firstly, the majority of the states listed are small states, with small populations and equally small GDPs, which pose little to no threat to European countries’ tax receipts. Some small European jurisdictions like Guernsey, Monaco and Liechtenstein are included on the list. Curiously, however, larger states such as Luxembourg, the Netherlands and Ireland which are currently the subject of investigations are conspicuously absent.

Secondly, the criteria used to single out these states as tax havens is sketchy. Each of the states on the list has been blacklisted by at least 10 of the 28 EU countries as tax havens.According to the EC’s website, the criteria for identifying these states include “compliance with transparency and exchange of information standard, absence of harmful tax measures and “other criterion”, whatever that “other criterion” means. This issue of criteria is an important one as several of the states listed currently have signed or are in the process of ratifying tax agreements with states on whose blacklists they appear. Barbados for instance has tax agreements with Italy, Spain, Slovakia and Portugal, while Cayman Islands has agreements with all but one of its accusers. What therefore are the criteria?

This brings us to the big question, why now? In light of the revelation of Luxleaks and the European public’s demand for answers, it behooves the Commission to call for reforms of the community’s tax policy and go after those they believe to be responsible for billions of dollars in lost revenue to member states’ coffers. In such a case, by targeting Caribbean offshore jurisdictions, the EU is off mark. The biggest tax competitors for EU countries are within the EU itself. The right to tax has long been regarded as one of the hallmarks of national sovereignty and is a right states guard jealously. The EU does not as yet have a harmonised tax policy, meaning that member states still compete with each other through tax incentives to attract large companies. The Commission itself recognises this as it seeks to relaunch its proposal for a mandatory Common Consolidated Corporate Tax Base (CCCTB), which will create a common and singular set of rules by which companies calculate their taxable profits in the EU.

Secondly, Caribbean offshore tax jurisdictions have little incentive to be uncooperative in tax matters.  In many countries the international business sector is a major source of corporate profits and foreign exchange, as well as employment. In Barbados it accounts for approximately 60% of corporate revenues. Most Caribbean countries, including Barbados, pride themselves not solely on their low tax rates, but their high levels of transparency, regulation and integrity as offshore domiciles while at the same time offering tax efficient vehicles and a business friendly environment. Moreover, the kinds of legitimate international businesses which Caribbean islands seek to attract often do not wish to be seen as carrying on business in tax havens. Reputation means everything.

This challenge by the EU is just one in the long line of attempts by wealthy countries to crack down on offshore jurisdictions which they blame for taking tax revenues out of their reach. In the late 1990s to the mid-2000s Caribbean countries fought hard, and successfully so, to be taken off the OECD’s blacklists in its Harmful Tax Practices reports. Many states have gone to great pains to be in compliance, including signing Tax Information Exchange Agreements and enacting and updating Anti-money laundering legislation.  Barbados’ strategy has been to go beyond TIEAs and negotiate full double taxation agreements in order to maximise the developmental benefits. By constantly speaking of stamping out “tax avoidance”, there also seems to be a further intentional blurring of the line between tax avoidance, which is perfectly legal, and tax evasion, which is illegal.

The EU’s blacklist has little merit. Several countries, including Barbados, have made clear their intentions to challenge their blacklisting status. Besides the questionable omissions already mentioned, most of the countries which have Caribbean offshore jurisdictions on their national blacklists do little if any business with the Caribbean. In contrast, the UK, with which most Caribbean countries have a treaty, has not named a single jurisdiction as uncooperative which speaks volumes. At least, the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes has distanced itself from the list, stating categorically “[a]s the OECD and the Global Forum we would like to confirm that the only agreeable assessment of countries as regards their cooperation is made by the Global Forum and that a number of countries identified in the EU exercise are either fully or largely compliant and have committed to AEOI, sometimes even as early adopters.”

This is but a small consolation at least.  Yet the question cannot helped be asked, when will the attacks on Caribbean offshore jurisdictions end?

Alicia Nicholls is a trade policy specialist and researcher.


The Caribbean Trade Law and Development Blog is owned and was founded by Alicia Nicholls, B.Sc. (Hons), M.Sc. (Dist.), LL.B. (Hons), a Caribbean-based trade and development consultant. She writes and presents regularly on trade and development matters affecting the Caribbean and other small states. You can follow her on Twitter @LicyLaw. All views expressed on this Blog are Alicia's personal views and do NOT necessarily reflect the views of any institution or entity with which she may from time to time be affiliated.

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