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Abu Dhabi, UAESunday 24 June 2018

EU puts 17 countries on tax haven blacklist

The list, which was agreed on Tuesday after a year of tough negotiations, has been criticised for omitting the worst offshore offenders

An Oxfam activist demands actions over tax havens in Brussels as EU ministers agreed a 17-strong blacklist of nations outside the bloc. AFP PHOTO / EMMANUEL DUNAND
An Oxfam activist demands actions over tax havens in Brussels as EU ministers agreed a 17-strong blacklist of nations outside the bloc. AFP PHOTO / EMMANUEL DUNAND

European Union ministers have adopted a blacklist of 17 tax havens including Panama, South Korea, Bahrain and the United Arab Emirates after a year of tough negotiations.

The list forms part of a kickback against what is seen as tax dodging by the rich and famous, in the wake of the Paradise Papers scandal.

However, the list has not cheered those who were hoping for a crackdown, with campaigners dismissing it as a “whitewash” which omitted the most notorious tax havens.

Others have criticised the list for being “politically led” after the EU refused to include any of its own member countries on it.

The countries on the list are: American Samoa, Bahrain, Barbados, Grenada, Guam, Macau, the Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, South Korea, Trinidad and Tobago, Tunisia and the United Arab Emirates.

South Korea, which has a comprehensive free trade deal with the EU, was listed because it has “harmful preferential tax regimes,” while the UAE does not apply minimum global standards against tax avoidance, the EU said in a document.

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A further 47 countries are on a "grey list", sources said.

The EU struggled for over a year to finalise the list, with divisions still strong in recent days on who would make the final version.

Britain fought particularly hard against the list, afraid that its crown dependencies, including Jersey and the Virgin Islands, would be singled out.

In the end, no British overseas territories were put on the blacklist, in what was seen as a diplomatic victory for London. They were put on the grey list instead.

EU tax commissioner Pierre Moscovici said the blacklist represented "substantial progress", adding: "Its very existence is an important step forward.”

However, the blacklist was criticised as a “whitewash” by campaigners and MEPs.

“It undermines the EU’s credibility that member states were only able to agree on a whitewashed blacklist of tax havens,” said Sven Giegold, economics spokesperson for the Green group.

“Not one of the most important tax havens has been put on the list. The list is politically biased as relevant financial centres like the United States of America are missing.”

Activists also said certain EU members should have been included in the list, if the bloc was serious about cracking down on tax havens.

In a tweet, Oxfam pointed out that several EU countries actually fail the EU’s own criteria for blacklisting.

Alex Cobham, chief executive of the Tax Justice Network, added: “Rather than have a list of tax havens based on an objective set of criteria, as originally envisaged, the list appears to be a political fix with EU members picking their least favourite countries to name and shame.

“The result of the flawed blacklisting process is a politically led list, that includes only the economically weak and politically unconnected.

“While EU members like the Netherlands, Ireland and Luxembourg are the greatest procurers of global profit shifting but are excluded; and while the UK has sought to frustrate the blacklisting of its crown dependencies and overseas territories at every turn, the list is hard to take seriously.”

EU Economic Affairs Commissioner Pierre Moscovici admitted ahead of the official announcement that the final list was fewer than the 20 countries he had hoped for but he called it an "initial victory".

Certain jurisdictions are understood to have been given leeway after suffering severe damage during hurricanes in the Caribbean earlier this year.

Enforcement is the biggest problem, with EU countries split over whether blacklisted countries should be subjected to financial sanctions or if the list itself is shaming enough.

Several states, including France, support tough measures against the listed tax havens such as exclusion from EU and World Bank funding, though the debate is still open.

Other countries are reluctant to draw up common sanctions, believing that responsibility is better left to member states.

"To be on a blacklist is in itself bad enough and of course there will be consequences for these countries," Luxembourg Finance Minister Pierre Gramegna said.

The EU originally screened a total of 92 jurisdictions and once the list is compiled it is expected to be continuously updated.

In a blow to activists, states that charge no corporate tax are not automatically considered at risk of breaching EU tax criteria.

However, the criteria do single out countries that facilitate the creation of shell companies and other structures that could aid tax avoidance.

Countries in the EU's firing line have been given an opportunity to stay off the list if they provide a political commitment and a detailed plan to comply.