Tuesday, 30 June 2015

The Eurovision Tax Haven Blacklist

The Eurovision Tax Haven Blacklist

I’ve been looking at the recently published EU Blacklist, and there are some interesting features of the finer detail.

Jersey is listed by Belgium, Bulgaria, Croatia, Greece, Italy, Lithuania, Portugal and Spain,

Guernsey is listed by, Belgium, Bulgaria, Croatia, Estonia, Greece, Italy, Lithuania, Poland (Sark only), Portugal and Spain

Isle of Man is listed by, Belgium, Bulgaria, Croatia, Greece, Italy, Latvia, Lithuania, Portugal and, Spain

It is notable that economies like France which are stronger and our close neighbour – despite issues in the past – do not list Jersey:

France lists, Botswana, British Virgin Islands, Brunei, Guatemala, Marshall Islands, Montserrat, Nauru, Niue

And the same is true of Germany – no listing of the Crown Dependencies.

So what is going on? Precisely what credibility can we give to economies like Greece, for example, which are hardly shining examples of economic rectitude?

Costas Meghir, Professor of Economics at Yale University recently described the Greek economy in these terms:

“Greece has no tradable goods sector to speak of. In other words Greece cannot export much except for some agricultural products and, of course, tourism. Both are low value added and belong to sectors exposed to intense international competition....There is no serious export sector to respond to this decline in costs because overregulation of the Greek economy, corruption and bureaucracy prevents serious investment from taking place.”

He suggests that one of the ways Greece can improve is as follows: “Corruption should be stamped out and tax evasion should be credibly pursued across all income and professional groups.” And he notes that there is “rampant tax evasion” in Greece.

And this is a country putting Jersey, Guernsey and the Isle of Man on a blacklist!

The Guernsey Press comments:

“No problems from Germany or France, instead Guernsey is skewered by Greece, Spain and Portugal, each of which has bigger issues on their economic plates than finding time to sign tax agreements with a small island in the Channel. And by using out-of-date information, Italy, with whom Guernsey has signed a tax agreement, is also drawn into the net.”

Bermuda notes that:

"At least five of those 11 EU member states that have us on their national blacklist have not performed their obligations in one way or the other. Two of the five were to give beneficial recognition to the Multilateral Tax Convention in their blacklist criteria; one is still in the process of considering recognition of the Multilateral Convention; one has not kept their promise to send Bermuda documents to sign to take us off their list; ... one of the two EU member states I earlier mentioned has not even signed up to the Multilateral Tax Convention, and one publicly announced earlier this year that it had taken Bermuda off its blacklist."

It is notable that the former Netherlands Antilles (also named the Dutch Antilles) are still blacklisted as such by 8 EU member states - although they have been dissolved on 10 October 2010!

When we come to look at Spain, their list seems to include any place they can think of!

Spain lists Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Brunei, Cayman Islands, Cook Islands, Curacao and Sint Maarten, Dominican Republic, Falkland Islands, Fiji, Gibraltar, Grenada, Guernsey, Hong Kong, Isle of Man, Jamaica, Jersey, Jordan, Lebanon, Liberia, Liechtenstein, Macau, Mauritius, Monaco, Montserrat, Nauru,, Northern Mariana Islands, Oman, Panama, Saint Lucia, Saint Vincent and the Grenadines, San Marino, Seychelles, Singapore, Solomon Islands, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands, United Arab Emirates, Vanuatu.

Meanwhile Spain is still annoyed. Although they flagged up Gibraltar, too few other EU countries did, and Spanish Treasury Minister Cristobal Montoro said Spain has “more than sufficient reason to view the Gibraltar as a tax haven.” I think it is pretty clear that politics is playing a part in this rather than any criterion!

Meanwhile Spain has to contend with “Unexplained payments to public officials received from Switzerland, shares in obscure wind farm companies resold for hundreds, even thousands of times the initial capital invested, home mortgages paid off by opaque entities, homes renovated by generous donators, etc. Some names and amounts are already known, but these suspected officials decline to comment. One of them now lives in Poland.”

The Spanish blacklist is probably a very good way of burying bad news.

Commenting on the list, Pierre Moscovici, the EU's top tax official, said: “"Our citizens can no longer tolerate that certain companies, often the most prosperous, avoid fair tax contributions and that certain tax regimes encourage them on this path"

And yet the list was designed to exclude any voting on fellow EU states, where some of the most flagrant avoidance of tax by companies takes place! This gives a very distorted picture.

Meanwhile, with considerably less fuss and media press releases, as the Jamaican observer notes:

“The Commission also opened tax investigations last year into Apple in Ireland, Starbucks in the Netherlands, and Amazon in Luxembourg. On June 8, it set a one-month deadline for Estonia and Poland to provide long-overdue information about their tax practices or face court action”

Poland, it may be noted, was a country listing Sark!

The Guardian was even more scathing on the lists:

“A blacklist of the world’s 30 worst-offending tax havens, published on Wednesday by the European commission, includes 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.”

“Niue, situated east of Tonga in the Pacific Ocean, has appeared on tax haven lists before. But the island, which has an economic output estimated at just $10m (£6.3m) a year, has rarely been cast as a major threat to the tax receipts of Europe’s largest economies.”

Avinash Persaud, commenting on the list, noted the lack of publicity to “in house” tax avoidance:

“The Netherlands, Ireland, and Luxembourg are under investigation by the EU Competition authorities for facilitating aggressive tax avoidance that formed the basis of their own international financial centres. These investigations followed the leaking of documents to journalists that showed Luxembourg had entered into 548 private tax rulings between 2009 and 2013 to allow 340 of the largest companies in the world to avoid paying taxes in EU countries." 

"The companies included Pepsi, Amazon, Walt Disney, Procter & Gamble, IKEA, Heinz, Deutsche Bank, and J.P. Morgan. Yet Luxembourg, Ireland, and the Netherlands are not on the European Union’s list. Instead of tarring and feathering the countries representing the greatest source of tax losses to the European Union, they have chosen to be judge and jury over 30 small countries, powerless to defend themselves against wrongful accusations.”

“The European Union’s actions would make former FIFA vice president Jack Warner blush: be thick in the middle of hundreds of deals avoiding billions of taxes, then accuse Niue, a Pacific island state with a GDP of $10 million, as a major threat to the tax receipts of European governments”

“Incidentally, FIFA, under investigation for corruption and bribery, is headquartered in Switzerland, another country that does not appear on the EU list. The European Union is saying that Swiss activities are far less a threat to EU tax revenues than those that take place in Niue, Montserrat, Liberia, Vanuatu, St. Vincent, St. Kitts, and the Cook Islands.”

The list resembles nothing so much as a Eurovision Song Contest, where the quality of songs doesn’t have as much to do with the ratings as political point scoring. A document which gives details of criteria used to assess countries on the lists gives no real details at all. What we need, above all, is not list listings, but details. If there is cause for concern – this country on the list fails to measure up because of x, y, and z.

That – to be fair – was why Jersey was temporarily on a French blacklist. It was a case involving a TIEA in which the French authorities took the position that the Jersey courts were dragging their heels and essentially trying to avoid compliance. Jersey has reviewed the processes it used to deal with tax information requests, and subsequent changes to the law limited the ability of those who are the subject of a TIEA request to appeal to the Jersey courts.

It was a bit of a shock for Jersey to be on a list, but the reasons were clear, and the changes made were agreed with the French authorities, and as a result the position regarding TIEAs is more robust.

But this list has no examples, nothing apart from a blanket prescription to those on the list to “clean up their act”.

The “Discussion paper on criteria applied by EU Member States to establish lists of non-cooperative jurisdictions” which is the closest we get to methodology gives no details, but does note the following rather damming points:

“Member States apply a range of criteria in assessing other countries' tax systems, which may raise an issue of relevance of the criteria chosen.”

“Member States' assessments under identical or similar criteria vary quite significantly, which may raise an issue of consistency”

Pascal Saint-Amans, the OECD’s top tax official, said:

“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 AEOI, sometimes even as early adopters”

“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”

“In addition, the inclusion of harmful tax practices or "other criterion" in determining inclusion in a national blacklist makes it impossible to determine how this independently reflects on a jurisdiction compliance with the Global Forum standards.”

In conclusion, the EU Tax List lacks any transparency, consistency, appears to be politically motivated in some listings, and may even be used to draw attention away from internal defects of tax systems within the EU, which have not received such a high profile and headline news.

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