WATCH: Jersey in EU’s sights in plan to tighten tax haven ‘blacklist’

Monday 25 January 2021

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Jersey and Guernsey are in the EU’s sights as it aims to tighten up the criteria of its tax haven ‘blacklist’.

Deeming the current list “confusing and inefficient” and unlikely to catch the worst offenders, MEPs voted overwhelmingly in favour of an overhaul of the system used to draw up the list of blacklisted jurisdictions on Wednesday.

They decided - with 587 votes in favour, 50 against and 46 abstentions - that any 0% tax rate policies should lead to automatic inclusion on the list and that jurisdictions should not be able to be removed from the blacklist if they only make "token" tweaks to their laws.

Jersey was previously placed on the EU blacklist but later cleared from the register by the EU Code of Conduct Group amid a pledge to clamp down on ‘shell’ companies in 2018. 

Since then, economic substance measures - rules requiring that companies prove they are actually active on the island in order to enjoy tax benefits - have been introduced.

The OECD Forum on Harmful Tax Practices also assessed Jersey in 2018, agreeing unanimously that it was “not harmful." 

Jersey is also currently working with the OECD to agree international standards for the taxation of the digital economy, as well as ‘minimum effective taxation.'

But the island was nonetheless specifically singled out by EU Tax Matters Subcommittee Chair Paul Tang ahead of last week’s European Parliament vote as one of the “world’s most renowned tax havens.” 

Yesterday, the first rapport of the FISC committee was voted upon in the European Parliament. Here I will quickly outline why the EU blacklist of tax havens needs to be reformed. [1/7] pic.twitter.com/WS1BrBc8Po

— Paul Tang (@paultang) January 21, 2021

“…What I have seen from discussions with the different political groups is that we have at least one notion of fairness in common — that is that everyone has to pay taxes,” he told MEPs. 

“That is the rule, and there are no exceptions to the rule. Not for billionaires, not for big polluters and not for big corporates. 

“This brings me to the blacklist of tax havens: the list of non—cooperative jurisdictions. It was long a deep wish of the European Parliament to have this list. Indeed, in 2017 we got our way when it was established for the first time. It was and is a good idea to name, to shame and, above all, to change. Change because being on the list should have, and must have, real consequences — both for the countries on the list and for the businesses that operate from those countries. But the Member States that ultimately decide on the list have forgotten just one thing: to include actual tax havens.”

Noting that the countries currently included on the blacklist are only responsible for 2% of global tax avoidance, he continued:  

“The list does not work yet. And the nasty truth is that it’s not getting better; it’s getting worse. The Virgin Islands, Bermuda, Jersey. These are some of the world’s most renowned tax havens and they have been removed from the list.” 

While MEPs ultimately voted to back the resolution, some noted the impact that tightening the blacklisting criteria could have on affected jurisdictions during the debate. 

Ana Paula Zacarias, President-in-Office of the Council, commented: "The defensive measures can have considerable consequences for the listed jurisdictions... the key objective of the list is to ensure change, as Mr Tang said, and not punish the listed jurisdiction.

"Being listed entails reputational damage and we see that this aspect tangibly contributes to the efficiency of the EU list. More and more jurisdictions change their practice and adopt tax good governance; standards that are also applicable between the EU Member States." 

Following the vote, Mr Tang MEP also highlighted Guernsey, saying: “By calling the EU list of tax havens ‘confusing and inefficient’, the Parliament tells it like it is. While the list can be a good tool, member states forgot something when composing it: actual tax havens.

“The truth is, the list is not getting better, it's getting worse. Guernsey, the Bahamas and now the Cayman Islands are only some of the well-known tax havens that member states have taken off the list. In refusing to properly address tax avoidance, national governments are failing their citizens to the tune of over €140 billion. Especially in the current context, this is unacceptable.” 

Pictured: Mr Tang MEP also singled out Guernsey.

He went on to state, however, that the passing of the resolution should also be cause for a moment of introspection among EU member states. 

Mr Tang admitted during the debate that the Netherlands alone - his native country - is responsible for 8.5% of global tax avoidance. 

“…If we focus on others, we also need to look ourselves in the mirror. The picture is not pretty. EU countries are responsible for 36% of tax havens,” he said after the vote. 

Following the resolution, Tax Justice UK campaign group Director Robert Palmer suggested that Overseas Territories and Crown Dependencies had “lost their protector within the corridors of Brussels” due to Brexit and that he expected the EU to “ramp up pressure on places like Jersey to clean up their act.” 

“The UK itself has been warned that if the government tries a Singapore-on-Thames approach, with a bonfire of regulations and taxes, then the EU will act swiftly.” 

Responding to the resolution, External Relations Minister Senator Ian Gorst emphasised: “EU Member States - through the EU Code of Conduct Group - have already assessed Jersey’s tax regime and found it to be compliant. In 2018, the EU Finance Ministers confirmed Jersey’s status as a fully cooperative jurisdiction (“white-listed”). 

“We note this resolution, however the criteria for the EU list are set by the EU Council (Member States) not the European Parliament.  

“Jersey has a track record of cooperation with the EU Code of Conduct group and we will continue to monitor any proposals for new global standards in financial services.”

Pictured: External Relations Minister Senator Ian Gorst said Jersey has a "track record of cooperation."

Joe Moynihan, CEO of Jersey Finance, which is the finance sector's key promotion and lobby group, said: "Jersey already meets the highest international standards of governance and transparency in financial services. We have co-operated closely with EU governments over many years, especially through its EU Code of Conduct Group, which has already assessed Jersey’s tax regime and found it to be compliant.

"Long-term dialogue with Member States has led to greater understanding of our finance industry and resulted in our own bilateral agreements and arrangements with the EU, which in turn provides Jersey with market access.

"The industry will continue to work with government and the regulator in helping to ensure that both our robust regulatory regime and our commitment to tax transparency and co-operation with tax authorities, such as those in the EU, are recognised by all key European bodies." 

MEPs, however, have brought the role of the informal Code of Conduct Group into question, and are calling for the process of establishing the list to be formalised through a legally binding instrument by the end of 2021.

CLICK HERE to watch the debate in the EU Parliament.