EU’s blacklisting of Caribbean IFSCs: A surprise to no one

On June 17, 2015, the EU published its list of top 30 non-cooperative jurisdictions – or tax-havens as they are called by both a hostile media and politicians – ostensibly as part of a crackdown on companies which are using these financial services centers to minimize paying taxes, legitimately I might add, in the EU bloc.   

In making the announcement, EU Economic Affairs Commissioner and former French Finance Minister, Pierre Moscovici, stated at a news conference that:  “We are today publishing the top 30 non-cooperative jurisdictions consisting of those countries or territories that feature on at least 10 member states’ blacklists.” He added that the publication of the blacklist was a decisive step that would “push non-cooperative non-EU jurisdictions to be more cooperative and adopt international standards.”

According to a report in the Economic Times of India, of the aforementioned date, the “…tax proposals are a response to the so-called ‘LuxLeaks’ scandal that exposed deals with the tiny EU state of Luxembourg that saved some of the world’s largest companies, including Apple, IKEA and Pepsi, billions of dollars in taxes.

“The dealings in Luxembourg have been particularly embarrassing for Jean-Claude Juncker, now the head of the European Commission, who was the small duchy’s premier when the deals were made.


Pierre Moscovic, former French Finance Minister  

“The EU is also looking to build on existing probes into the tax dealings of Apple in Ireland, Starbucks in the Netherlands and Amazon and Fiat in the Luxembourg.
“Corporate taxation in the EU needs radical reform,” Moscovici said as he unveiled the plan. “Member States need to pull together and everyone must pay their fair share.”

The global reaction 

Of the 30 jurisdictions listed, 15 are located in the Caribbean and Central America which, to the learned, come as no surprise given the not so subtle rich versus poor and large versus small, subplot of the entire saga of the recent attacks against IFCs dating back to 1998/1999 when the Organisation for Economic Cooperation and Development launched its “Harmful Tax Competition” project. What was surprising however, in a case of what can only be described as “man bites dog,” was the reaction of the non-tax paying bureaucrats at the OECD in Paris. 

Perhaps out of a sense of guilt or more likely, because they were being overshadowed by their fellow bureaucrats in Brussels, the OECD condemned the blacklisting in an email sent to all members of the Global Forum on Transparency and Exchange of Information for Tax Purposes which stated, “as the OECD and the Global Forum we would like to confirm that the only agreeable assessment of countries as regards their cooperation is made by the Global Forum and that a number of countries identified in the EU exercise are either fully or largely compliant and have committed to [automatic exchange of information], sometimes even as early adopters.”

Pascal Saint-Amans, the director of the OECD Center for Tax Policy and Administration,

The email, which was signed jointly by Pascal Saint-Amans, the director of the OECD Center for Tax Policy and Administration, and Monica Bhatia, the head of the Global Forum Secretariat, went on to state that, “without prejudice to countries’ sovereign positions, we are happy to confirm that these jurisdictions are cooperative and we would like to commend the tremendous progress made over the past years as well as the cooperation and integrity of the Global Forum process.”


Monica Bhatia, the head of the Global Forum Secretariat 

I am of course not convinced that there was any sincerity in the voluminous words of these two bureaucrats and it seems to me that this was a case of good cop, bad cop where one pro-tax group pretended to be on the side of the oppressed jurisdictions while nodding and winking as the other pro-tax group turned up the pressure. Perhaps Saint-Amans and Bhatia believe that those of us in the blacklisted jurisdictions aren’t aware that not only is there a direct Eurostar train-link between Paris and Brussels but that the two bodies work hand in glove coming from the same school of political thought.

The two learned bureaucrats further noted in their email that the EU Commission has incorporated the Global Forum’s terms of reference into its own principles of good governance in tax matters and stated that “we have already expressed our concerns (to the EU Commission) and stand ready to further clarify to the media the position of the affected jurisdictions with regard to their compliance with the Global Forum standards.”

The sophistry of both those concerns and putative clarifications to the media needs no further comment I can assure you in light of my views expressed elsewhere in this article.
Interestingly enough, in another case of “man bites dog,” the rabidly anti-offshore British newspaper The Guardian, only I suppose because the EU did not go as far as the journalists wanted and out of a sense of grievance, noted the list takes aim at “the tiny Polynesian island of Niue, where 1,400 people live in semi-subsistence – but does not include Luxembourg, the EU’s wealthy tax avoidance hub.”

Of course for once I am in agreement with The Guardian since many others such as The Economist also pointed out this as evidence of the irrationality of the EU’s list and its lack of objectivity.

The Economist noted that: “Far from being exhaustively researched, the list is an aggregation of national lists: it includes any country blacklisted by ten or more EU members. Not only does that strike many as arbitrary, but the criteria for inclusion differ from EU state to state: some consider a low tax rate alone sufficient grounds, others require secrecy and opacity too. The most avid blacklisters are financial minnows such as the Baltic states and Bulgaria; Germany and Britain are among those with no entries.”

It goes on to say that: “The list is at odds with reality in other ways, too. On it are Nauru and Niue, two Pacific microstates. Both have had problems with dodgy shell banks in the past, to be sure, but these were shut down a decade ago under international pressure.

Today Nauru’s only formal financial institution, according to an anti-money-laundering group, is a branch of Western Union, a money transmitter, in a hardware store. Niue’s financial sector is by this measure at least twice as big – it boasts no fewer than two Western Union branches, plus a commercial bank.” As Prof. Jason Sharman of Griffith University in Australia pointed out, “it is hard to imagine complex tax-evasion schemes being run from such places.”

Prof. Sharman’s comment is an understatement but it encapsulates both the hypocrisy and the idiocy of the entire blacklisting exercise. 

In response several individual governments, the Organisation of Eastern Caribbean States (OECS), and CARICOM (The Caribbean Community) itself condemned the exercise.

The Bermudan government pointed out that at least five of its 11 EU black-listers have themselves failed to meet international tax obligations while The Economist, noted in its reporting that, “if the EU had assessed its own members honestly, it is hard to imagine the Netherlands, Luxembourg and Ireland – home to particularly rococo tax schemes attractive to American tech groups – not being on it. Some might add Britain, too.”

The government of Anguilla’s statement was axiomatic of the diplomatic language used in response. The statement made it clear that the government of Anguilla was: “dismayed by the recent publication by the EU Commission of the list of third-country non-cooperative tax jurisdictions. The Communication to which this list is annexed states that it is published in the interests of transparency. Regrettably, it entirely has the opposite effect.”

The statement went on to say that: “As you know, Anguilla has taken significant steps forward in tax transparency, putting us at the forefront of this important agenda and ahead of many other jurisdictions. Being early adopters, we have committed to automatic exchange of tax information in 2017, under the Common Reporting Standard, which is the global standard.

Indeed, we made this commitment before many EU member states.

“Further, we already have concluded several Tax Information Exchange Agreements, and we are party to the Multilateral Convention, by extension from the U.K. For the Communication therefore to suggest that we are non-cooperative jurisdictions is both misleading and disingenuous. It is unfortunate that the Commission neither vetted, nor provided information, to ensure that member states were aware of the individual and collective action we have taken.

“It has been acknowledged over a long period by the OECD that low tax rates by themselves are not harmful and we recognize that a list based solely on a tax rate below a certain level is a matter for those member states. As is the case with other countries, we are strongly of the view that tax rates are a sovereign choice for each country taking account of each jurisdiction’s domestic circumstances and political choices. Regrettably, the Commission’s list has failed to distinguish between the varying forms of member states’ lists and has inappropriately labelled our jurisdiction as ‘non-cooperative’.

“We welcome the confirmation of our view as articulated in the communication of June 19, 2015, to all Global Forum members by the director of the Center for Tax Policy and Administration and the head of Secretariat of the Global Forum on Transparency and Exchange of Information for Tax Purposes. 

Therefore, the only equitable resolution is for the Commission to revisit this list which gives an entirely false impression as regards cooperation in tax matters. We would welcome the Commission considering how they can assist in enhancing public and member state understanding of the actions we have taken, and the commitment we have demonstrated, and continue to demonstrate to global tax transparency. “

Why this will not end 

So much for the diplomatic necessities of the Anguillian and Bermudan governments but the reality remains that despite some back-pedaling caused by the widespread condemnation of the its actions, the EU with the overt and covert support of the OECD will continue to pressure the blacklisted jurisdictions.

The EU and indeed OECD bureaucrats are driven by concern for pure marginal corporate and income tax rates of foreign sovereign powers which may lure others to take advantage of more favorable business and living conditions and see nothing wrong with blacklisting places such as Nauru and Niue which don’t even have normal financial institutions. Those of us from places like Anguilla have been at pains to explain for years that we do not have low or zero tax rates; our tax regimes may be odd by standards of the developed world, but this has nothing to do with seeking to lure business to our shores and instead is as a result of our peculiar historical circumstances.

Small jurisdictions like Anguilla which were subsistence economies at best and up until the mid-1980s had no economic activity that would be worth noting, could not sustain the imposition of corporate and personal income taxes and thus, from its colonialization in 1650 to this date, such taxes have never been imposed. Despite this, the EU and several of its constituent member states have specifically used the level of taxation as a criterion to decide which jurisdictions to black-list.

To those of us who have been engaged in this process since 1999 and have been arguing, unsuccessfully since then unfortunately, none of this comes as a surprise. The EU and indeed the OECD are not concerned with objective criteria or consistency in approach when it comes to assessing compliance with their own international standards which they set in the dead of night and behind closed doors. 

They are concerned, have always been concerned and will always be concerned about tax revenues, ensuring a steady stream of income to prop up their failing welfare states as public expenditure continues to increase.

To achieve their goals, they seek to prevent capital flight and stamp out tax competition. They will use every device, every ruse, every machination and every technique, including their base erosion of profit-shifting program, the Common Reporting Standards and the supposed fight against money laundering, terrorist financing and other laudable schemes to promote this agenda. Only those who continue to fail to understand this, will be surprised by these continuing blacklisting exercises and developments.

The fact is that the EU is facing economic stagnation caused by anemic GDP growth, excessive state spending, a ballooning welfare state and a demographic time-bomb. Compared to the EU, the U.S. looks economically robust as the chart shows. See figure 1

US vs. Eurozone unemployment (%): on divergent paths


Given this situation, there is no way that the EU will end its attacks on low-tax jurisdictions.

Political leaders in these jurisdictions must therefore take the necessary decisions to more robustly defend their interests and work with likeminded decision-makers within the EU and indeed the U.S. in order to make the right policy decisions that would increase economic growth in these countries instead of seeking to punish foreign and sovereign jurisdictions for being more friendly to business interests and their own citizenry in terms of levels of taxation.