EU finance ministers today agreed to criteria to be used to identify non-EU countries as candidates for an EU tax haven blacklist which could result in countries that have low or even zero corporate tax rates to be omitted from the list.
Under the agreement, the EU Code of Conduct Group (Business Taxation) will screen non-EU countries based on whether they adhere to set criteria for fair taxation and tax transparency and adopt OECD/G20 base erosion profit shifting plan (BEPS) minimum standards.
The Council expects to endorse the list of “non-cooperative jurisdictions” by the end of 2017. The EU is working on defensive measures to be applied to the countries on the list.
“A dialogue will start with those countries that fail to comply with the criteria we have established, and only those jurisdictions refusing to cooperate and fulfill the criteria in due time will be placed on the so-called blacklist. Our primary goal is to incentivize, not to punish,” said Peter Kažimír, Slovak minister for finance and president of the Council.
The finance ministers’ agreement specifies that the criteria for “fair taxation” is met in a jurisdiction if the country does not adopt preferential tax measures that are harmful under EU definitions or “facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction.”
Kažimír said that some EU countries, as a matter of principle, would not accept that a country should be included on the EU tax haven blacklist simply by virtue of having a zero or low tax rate.
As as a compromise, the finance ministers agreed that the Code of Conduct group should evaluate a zero or low tax rate only as a possible indicator which could facilitate offshore structures and arrangements, Kažimír said.
The finance ministers’ agreement differs from an earlier Commission proposal for an EU tax haven blacklist by making a country’s adoption of BEPS minimum standards part of the assessment.
This means that countries must adopt in their tax treaties provisions to prevent tax treaty shopping; implement country-by-country reporting for transfer pricing; limit benefits of any intellectual property or other preferential tax regime; and take a number of steps to fully implement the mutual agreement procedure for the resolution of double tax disputes specified in their tax treaties.
The plan’s tax transparency requirement is similar to the OECD/G20 plan for identifying countries as “non-cooperative” for tax purposes, endorsed by the G20 in September.
A country meets the EU criteria if it makes sufficient progress toward adopting the international tax standards on automatic exchange of information and either signs the Multilateral Convention on Mutual Administrative Assistance in Tax Matters or has a sufficiently broad exchange network providing for exchange of information on request and automatic exchange of information.
The purpose of the tax haven list is to allow the EU to apply its collective weight to pressure countries to change tax laws that harm EU interests. Creating an EU-wide list would also discourage individual EU countries from publishing their own tax blacklists using divergent standards.
The EU is working on potential defensive measures with the expectation of Council endorsement by the end of 2017.
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