As part of an effort to devise an EU-wide common list of tax havens, the EU Commission today released a scoreboard designed to help identify countries located outside the EU that enable multinational corporation tax avoidance.
Eighty-one nations – including the US, China, and India – were identified on the scoreboard as ranking high for risk indicators selected by the Commission, suggesting that further scrutiny of these countries’ tax polices may be warranted to determine if they pose a threat to EU member states’ tax bases.
The EU is creating the tax haven list so it can 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, which, the Commission argues, can be confusing for business and non-EU countries.
“We want to have fair and open discussions with our partners on tax issues that concern us all in the global community. The EU list will be our tool to deal with third countries that refuse to play fair,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs.
Under a Commission scheme agreed to last May, the scoreboard will be used by the EU Code of Conduct Group which is charged with identifying jurisdictions that appear to have polices that harm EU interests. After the Code of Conduct Group’s selections have been endorsed by EU finance ministers, further analysis of the countries’ tax laws will be conducted, with the participation of the countries in question.
A country will be placed on the EU-wide tax haven list if it refuses to cooperate or engage with the EU regarding good governance. Sanctions will be imposed on listed countries to encourage them to improve their tax systems.
The Commission’s scoreboard categorizes countries based on whether a country is sufficiently “economically relevant” to the EU. In making that determination, the Commission assessed whether the country has strong economic ties with the EU, such as significant trade; has a disproportionately high level of financial services exports or a disconnect between financial activity and the real economy; and is stable enough for a tax avoiding multinationals to consider it safe to operate there.
Countries with economic relevance were then tested to see if their laws show some indication that they facilitate tax avoidance based on risk indicators. These indicators consider country’s tax transparency, whether the country has a preferential tax regime, and whether the country applies a zero corporate tax rate or has no corporate taxation at all.
Despite all the work on the scoreboard, the Commission stressed that the findings were not conclusive of whether a third country should be selected for screening or put on the common EU list.
The Commission previously attempted to create an EU-wide tax blacklist, but that effort was met with enormous criticism. The earlier tax haven list, published in June 2105, was comprised of all non-EU countries that were on at least 10 EU member states blacklists. OECD and many of the 30 countries placed on the list disapproved of the listing, though, because that several jurisdictions placed on the list were OECD Global Forum members that are rated as largely compliant and that also committed to automatic exchange of information.
The G20 earlier this month endorsed an OECD plan for labeling countries as “non-cooperative” for tax purposes. Countries would be so labeled if they fail to meet specified criteria for exchanging tax information with other countries. That list includes no assessment of whether a country’s tax policies are harmful because of the existence of low tax rates or preferential regimes.
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