EU May Blacklist U.S. As a Tax Haven After OECD Review (1)

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Colleen Murphy Washington Editor Penny Sukhraj London

By Joe Kirwin

The European Union may add the U.S. to its blacklist of tax havens if an OECD panel concludes its new tax law breaks bloc rules.

The EU sent a letter on March 15 requesting OECD analysis of the U.S. tax reform, according to confidential documents seen by Bloomberg Tax. It is assessing whether the U.S. should be placed on the EU tax haven blacklist for violating EU corporate tax criteria, according to the document.

Earlier this month the EU asked the Organization for Economic Cooperation and Development Forum for Harmful Taxation to conduct a “fast-track” review of the tax changes.

The U.S. cut its corporate tax rate to 21 percent from 35 percent as part of the 2017 tax act ( Pub. L. No. 115-97). The EU has been closely monitoring the progress of the legislation, and previously flagged several international tax provisions as potentially breaking World Trade Organization rules. The European Commission is separately considering whether to file a trade complaint with the WTO.

The blacklist currently has nine countries or jurisdictions, which the EU considers to be “non-cooperative jurisdictions for tax purposes.” It is part of the bloc’s efforts to combat tax evasion by naming jurisdictions with abusive tax systems.

The OECD didn’t immediately return a request for comment.

Harmful Regime?

Prepared for a March 22-23 summit of EU leaders, the documents states the EU Code of Conduct for Business Taxation group considers whether a jurisdiction has a harmful preferential tax regime when deciding whether to add it to the blacklist.

The document adds that because the U.S. is a member of the OECD, the “primary body responsible to assess whether there are preferential regimes included in their tax reform” is the OECD Forum on Harmful Tax Practices.

Whether or not the U.S. should be on the EU tax haven blacklist has been a controversial issue since the process started in 2016. Besides corporate tax criteria, there is also “transparency” criteria involving issues related to the transfer of data, including interest-bearing income from bank accounts. This includes the OECD Common Reporting Standard, which the U.S. hasn’t adopted.

Members of the European Parliament, as well as some tax advocacy groups, insist the U.S. should be on the tax haven blacklist. They argue that along with not implementing the Common Reporting Standard, tax laws in states like Delaware and Nevada allow beneficial owners of companies to remain confidential—making the country a tax haven.

The London-based tax advocacy group Tax Justice Network “has been calling for some time for the U.S. to be added to the EU’s tax haven blacklist,” according to a March 23 statement to Bloomberg Tax.

“The U.S. is second place in our Financial Secrecy Index and their refusal to join the Common Reporting Standard means that it one of the biggest threats to global financial transparency,” the statement said.

Can Concerns Be Fixed?

The EU confidential document also calls on individual EU member nations to determine whether aspects of the U.S. tax reform violate bilateral tax treaties.

A European Commission official told Bloomberg Tax on March 22 that before a trade complaint is filed at the WTO, the EU executive body is “exploring with the U.S. counterparts” whether their concerns can be “addressed during the implementation of the U.S. tax reform.”

Two provisions the EU has criticized, a base erosion and anti-abuse tax and a deduction for foreign-derived intangible income, are currently being reviewed by the U.S. Treasury Department. The House Ways and Means Committee is also fine-tuning the tax law’s international provisions.

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

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

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