EU Identifies 28 Tax Regimes That Could Make Blacklist

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By Joe Kirwin

Dec. 5 — The European Union has targeted 28 jurisdictions considered to have harmful tax regimes, nations that will potentially face scrutiny in early 2017 as part of the process to define its tax haven blacklist.

Based on documents seen by Bloomberg BNA, the 28 countries targeted by the EU Code of Conduct Group for Business Taxation include a range of Pacific or Caribbean nations with offshore financial centers. Among them is Belize, Grenada, Cook Islands, Montserrat, Cabo Verde, Dominica, Saint Kitts and Nevis, Macao, Saint Lucia and Samoa.

According to the confidential document, Anguilla, Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man and Jersey have been cited for potential screening by the Code of Conduct group in 2017, on account of their zero tax rates.

Thirteen of the 28 are considered particularly problematic due to their failure to commit to the OECD’s Inclusive Framework for implementing the minimum base erosion and profit shifting reforms.

“The Code of Conduct group has a solid and proven experience in dealing with harmful tax regimes, including regimes of third countries,” the confidential document states. “Assessments of these 28 countries could be undertaken autonomously by the Code of Conduct group with the assistance of the commission and experts in the review panels with a commitment to produce the outcomes in time for the final list.”

Going Beyond OECD

The EU tax haven screening criteria is stricter than the ongoing tax haven screening process initiated by the Organization for Economic Cooperation and Development at the request of the Group of 20, set for completion by the end of 2017.

It includes assessment of preferential or harmful tax regimes, implementation of BEPS reforms and potentially zero corporate tax rates.

The OECD process only targets countries or jurisdictions that don’t abide by two of three “transparency criteria,” which include a commitment to the OECD Common Reporting Standard for automatic information exchange of bank information, information exchange of bank information on request and ratification of the OECD Convention on Mutual Administrative Assistance.

In an effort to counter complaints for going beyond the OECD process, the conduct group has agreed to a series of measures to “ensure consistency’’ with the Paris-based Global Forum, including the use of the BEPS Inclusive Framework process, designed partly to help developing countries implement four minimum BEPS reforms.

“Jurisdictions engaged in the G-20/OECD Inclusive Framework on BEPS will be subject to a scrutiny of their preferential regimes,” according to the Code of Conduct Group document.

However, it adds that EU will conduct its own evaluations’ on a “thematic’’ basis.

Tax Regimes Not Specified

The preferential tax regimes employed by the 28 countries aren’t specified. But overall, they include a range of measures, including many that EU member countries were forced to phase out over the past two decades. These include zero tax rates on foreign income, tax coordination centers, risk reserves for international group financing, international trading companies and foreign sales corporations.

Besides targeting harmful tax regimes as part of a “fair taxation’’ criteria, the EU is considering whether to target foreign countries or jurisdictions that have zero tax rates.

It is due to draw up an “economic substance’’ test that will determine whether the zero rates are set up to “facilitate offshore structures or arrangements aimed at attracting profits that do not reflect real economic activity.”

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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