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By Joe Kirwin
The U.S. won’t hold a place on a forthcoming EU tax haven blacklist despite not fulfilling transparency criteria for bank information exchanges—an absence that critics say will undermine the credibility of the EU process.
EU finance ministers Nov. 7 promised to complete, by the end of December, an effective EU tax haven blacklist in the wake of the weekend’s Paradise Papers revelations of secret offshore accounts. Multiple EU diplomats speaking on the condition of anonymity confirmed that the EU has sent letters to 53 countries that violate EU criteria approved in 2016, and the U.S. is in the clear.
“The list went out to 53 countries and the United States was not one of them,” one of the EU diplomats told Bloomberg Tax during an Nov. 7 interview. “The countries that received a letter indicating they risk being on the tax haven black list have until Nov. 17 to respond.”
The U.S. hasn’t fulfilled one of the most important EU transparency criteria, adoption of the Organization for Economic Cooperation and Development’s common reporting standard. Asked how credible the EU tax haven blacklist will be if the U.S. is exempted even though it fails the CRS criteria, the EU diplomat shrugged and said: “Good question.”
A high-level European Commission official, asked by Bloomberg Tax if the EU list would be credible without the U.S., said, “All I can say is that the commission wants a list with credibility and with sanctions that are effective.”
Andres Knobel, an official with the U.K.-based Tax Justice Network, told Bloomberg Tax in an April 7 email that an EU blacklist without the U.S. won’t be taken seriously.
“First, because of its banking secrecy,” Knobel said. “The U.S. will not participate in the CRS for global automatic exchange of information.” Even countries that managed to sign a reciprocal Foreign Account Tax Compliance Act agreement “with the U.S. will not receive any banking information at the beneficial ownership level,” he said.
Knobel also said laws in Delaware and Nevada, among other states, that allow beneficial owners of companies to remain anonymous allow “individuals from all over the world to use some U.S. entities and trusts to remain hidden.”
Paul Tang, a Dutch member of the European Parliament who serves on the institution’s Panama Papers investigative committee, told Bloomberg BNA the decision not to pursue the U.S. for the blacklist process wasn’t surprising but is disappointing.
“The U.S. does not fulfill key transparency criteria.,” Tang told Bloomberg Tax in a Nov. 7 interview. “This goes to show that the process is political. But the relations with the U.S. are already strained so I can imagine there was a decision not to make them worse.”
But Tang downplayed the possibility that the U.S.’s absence would allow others to effectively complain of a double standard.
“I can not imagine the Cayman Islands or other tax havens will compare themselves to the U.S.,” Tang said.
Molly Scott Cato, another Parliament member on the Panama Papers panel, said the “weakness” with the EU list will be that “some of the biggest global players who are part of the global tax haven network” will not be on it.
“Both the U.K., with its refusal to clean up the legal limbo of the overseas territories, and the U.S., which still refuses to sign up to the CRS and takes no action against states such as Delaware that operate like a internal tax haven, have features of tax havens,” Scott Cato told Bloomberg Tax in a Nov. 7 email.
Over the next month, EU finance ministers will not only work to finalize the list of countries or jurisdictions on the tax haven blacklist but also hope to agree on sanctions that will be imposed on listed tax havens. In countries that end up on the EU’s blacklist of tax havens, the EU could subject companies operating within their borders to tax sanctions—such as withholding taxes and denying deductions for royalty payments—damaging the businesses’ ability to offset losses in the jurisdictions.
French Finance Minister Bruno Le Maire insisted Nov. 7 the EU must pressure the World Bank and the International Monetary Fund to deny economic assistance to countries on the EU tax haven blacklist.
“We can not justify providing financial assistance to countries that operate as a tax haven and do not provide the information we need to reduce tax evasion,” Le Maire told journalists as they entered the Nov. 7 EU finance minister meeting.
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