EU Countries Block Use of Rates as Tax Haven Criteria

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By Joe Kirwin

Nov. 4 — A “number” of European Union countries are blocking a push to include zero corporate tax rates as criteria for the bloc’s tax haven blacklist, according to Slovakia, which holds the rotating EU presidency.

EU members have been unable to reach an agreement on cracking down on offshore structures aimed at attracting profits that don’t “reflect real economic activity,” according to a document obtained by Bloomberg BNA, set for discussion at a Nov. 8 meeting of EU finance ministers.

The offshore structures apply zero or close to zero rates of corporation tax, or even lack a corporation tax system, the document—a Council of Ministers’ draft proposal—adds.

“A number of delegations insisted that tax rate can not, as such, be regarded as a criterion leading to a conclusion on presence of a harmful tax practice,’' the document said in relation to corporation tax.

The European Commission insists that using corporate tax rates as a tax haven criterion is crucial to protecting the EU tax base.

It also says the revelations from the Panama and Bahama paper leaks underscore how some jurisdictions with little economic activity have used zero corporate tax rates to attract offshore shell companies.

EU countries—especially those with low corporate tax rates such as Ireland, Malta, the Baltic nations and some from Eastern and Central Europe—have rejected any mention of including corporation tax as a criteria for the blacklist, according to an official who attended meetings where the issue has been discussed.

Other countries, such as Belgium, say corporate tax rates should be an “indicator” but not a definitive criterion.

“We think it should be something that is considered but it not should be a decisive factor on whether a country is on a blacklist,” Belgian spokesman Nico Van Dijck told Bloomberg BNA Nov. 4.

Other countries, meanwhile, such as Germany, Greece and France, insist that zero corporate tax rates be included in the criteria.

European Parliament Critics

To date, the negotiations over the tax haven criteria have taken place in the confines of the Code of Conduct Group for Business Taxation.

The failure to back the commission’s proposal on corporate tax rates as a criterion has triggered scathing criticism from members of the European Parliament.

“If a zero percent corporate tax rate is not an indicator for a tax haven then I simply can not imagine what is,’' Jeppe Kofod, a Danish member of the European Parliament and who is a spokesman on the EU lawmaking body’s special inquiry committee probing the Panama Papers.

“This is the bare minimum for an effective EU tax haven black list. I can say quite clearly that the European Parliament won’t accept such an approach.”

He added that “this shows the fundamental problem of lacking transparency and accountability within the Code of Conduct group.”

Other members of the parliament have criticized the EU’s refusal to screen all EU member states, including jurisdictions such as Switzerland, Andorra, San Marino, Monaco and Liechtenstein.

Despite the criticism, based on EU treaties, the parliament will not have co-decision powers to influence the EU tax haven screening process.

Transparency Plans

Plans have also stalled on the EU going beyond the OECD’s transparency criteria, according to the draft Council of Minister proposal.

The plans would call for all countries to adopt the common reporting standard (CRS), agree to exchanging tax information on request and sign up to the Organization for Economic Cooperation and Development’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

Slovak Presidency Compromise

In an effort to bridge differences, Slovakia has proposed a compromise to “limit” the corporate tax rate criterion “to the requirement that the jurisdiction should not facilitate offshore structures aimed at attracting profits which do not reflect real economic activity in the jurisdiction. In the view of the presidency this wording would suit the objectives of the upcoming screening and dialogue.”

European Commission proposals that have been accepted include consideration of the criterion relating to “preferential tax regimes” such as patent box regimes that don’t comply with the modified nexus approach.

In addition, the draft document indicates approval of foreign countries being judged on whether they use any harmful tax regimes banned by the EU Code of Conduct Group for Business Taxation. There are currently more than 100 such harmful tax regimes that have been identified by the group.

Transparency Criteria Scaled Down

The commission proposed that any country must comply with all three of the OECD’s transparency criteria to avoid being on the EU blacklist: application of the CRS, compliance with the OECD Global Forum standard for automatic information exchange on request and ratification of the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

Preliminary discussions held during July and again in September indicated, according to Slovak presidency spokeswoman Renata Goldirova, that an overwhelming majority of EU countries supported this.

But opposition to this has emerged over the past month, according to a confidential Slovakian presidency document that accompanies the draft proposal.

“The point on which no agreement could be reached so far is whether all of these three criteria need to be fulfilled by a third country jurisdiction or just two of those for that jurisdiction to be deemed in compliance with the criteria on tax transparency,” the document states.

“While many delegations held the view that compliance with all three tax transparency criteria should consequently be required, several delegations insisted on full alignment with the currently OECD approach requiring for the time being compliance with just two of the three international standards on tax transparency.”


As a compromise the Slovakian presidency proposed a transitional period until Dec. 31, 2019, during which a non-EU jurisdiction could be regarded as compliant on tax transparency if it commits to the CRS and either information exchange on request, or the mutual assistance tax treaty.

It also indicates that a later decision could be made to move to the “three of three” requirement. EU countries couldn’t, however, agree on a date for when that would happen.

The Slovak presidency also proposed mandatory compliance with all three of the OECD’s transparency criteria, for any jurisdiction with a zero corporate tax rate.

Kofod said the failure to carry through with the “three of three” approach on transparency criteria for the EU tax haven black list would be “highly embarrassing” and the “the governments who are fighting against these basis requirements should be held accountable.”

U.S. Political Test

Since the U.S. hasn’t adopted the CRS, it could, in theory, be considered a tax haven.

The EU member states hope to finalize the EU tax haven blacklist criteria by the end of 2016 and then begin a screening process that will take place during the first half of 2017.

Negotiations with any country or jurisdiction that doesn’t comply with adopted criteria will take place in the second half of 2017.

If, after the negotiations, jurisdictions still fail to comply, they will end up on the EU tax haven blacklist.

EU member states are due to finalize sanctions they will impose on blacklisted countries in 2017.

To contact the reporter on this story: Joe Kirwin in Brussels at

To contact the editor responsible for this story: Penny Sukhraj at

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