Non-EU states held to double standards, despite internal deficiencies

On the 18th of February, the European Union increased the membership of its list of non-cooperative tax jurisdictions to include the Cayman Islands, Palau, Panama, and the Seychelles following a meeting of the bloc’s finance ministers. This membership formally blacklists the aforementioned nations alongside several others, resulting in potential reputational damage, greater scrutiny in their financial transactions and the loss of EU funding, disadvantaging nations outside of the European economic powerhouse.

The Cayman Islands is the first UK territory to be added to the blacklist, only weeks after the formal departure of the United Kingdom from the European Union on January 31st 2020, following a nearly four year withdrawal period. Since 2018, Cayman has adopted more than 15 legislative changes in line with EU criteria to satisfy the EU’s finance ministers, but it was determined regardless that the efforts made were not enough to avoid being demoted from the “grey list” – the list outlining nations to maintain an eye on – to the “blacklist”. Premier Alden McLaughlin, who is the head of the government, expressed his disappointment at the EU’s decision to move the Cayman Islands to the blacklist, noting that over the past two years, Cayman had cooperated with the EU to deliver on its commitment to enhance tax good governance.

This list, which was started in 2017, attempts to put pressure on countries to crack down on tax havens and unfair financial competition, and forcefully encourage legislative changes in order to be delisted. As of the conclusion of the last meeting, a total of twelve states are now listed as non-cooperative tax jurisdictions. As well as the four states added in February, Guam, Oman, Fiji, American Samoa, Samoa, Trinidad and Tobago, the US Virgin Islands, and Vanuatu have also been blacklisted.

Controversially, the EU blacklist currently only screens non-EU states and has previously stated that its own member states were already applying high standards against tax avoidance. However, a bloc of EU states, led by the Danish government and backed by Germany, Spain, Austria and France, have prepared a document which urges a discussion on whether or not the European Union had sufficient internal safeguards against tax avoidance and evasion.

Three Member States of the EU, Luxembourg, the Netherlands, and Ireland, widely use low tax and other incentives to host the EU headquarters of foreign firms, which undermines many of the tax safeguards instilled by other EU states. Ireland, for example, hosts the headquarters of Google, Apple, Facebook, PayPal, Microsoft, Yahoo, eBay, AOL, Twitter and Intel, who all enjoy the significantly lower corporation tax rate of 12.5%, as opposed to the 21% corporation tax currently in place in the United States. These three states were listed in a report by the International Monetary Fund researchers in September 2019 as world-leading tax havens, together with many of the nations currently o the blacklist.

It waits to be seen on whether or not the EU Blacklist will prevail as this situation develops, and whether or not the European Union will blacklist its own members in an effort to standardise their expectations of the global world. As it stands, the European Union’s duplicity and hypocrisy threatens to undermine this list, and the smaller nations look on in anticipation and hope that the European Union will come to a beneficial conclusion for their sake, and the sake of itself.

Written by Milo Dack

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