Last week, the European Union released a “scoreboard of indicators” it will be looking into when putting together its upcoming list of non-cooperative tax jurisdictions.
This scoreboard was designed with the sole purpose of helping the EU identify those countries outside of Europe that play a role in facilitating tax avoidance by multinational companies.
According to Pierre Moscovici, the EU’s Commissioner for Economic and Financial Affairs, Taxation and Customs, “We want to have fair and open discussions with our partners on tax issues that concern us all in the global community. The EU list will be our tool to deal with third countries that refuse to play fair.”
Specifically speaking, per an EC press release, this scoreboard or “pre-assessment was based on a wide range of neutral and objective indicators, including economic data, financial activity, institutional and legal structures and basic tax good governance standards.”
Additionally, this set of indicators “presents factual information on every country under three neutral indicators: economic ties to the EU, financial activity and stability factors. The jurisdictions that feature strongly in these three categories are then set against risk indicators, such as their level of transparency or potential use of preferential tax regimes.”
Overall, the purpose of this exercise is to “help Member States to narrow down their focus when deciding which countries to screen in more detail from a tax good governance perspective.”
Eighty-one countries have been flagged in this initial round of analysis, including the US, Singapore, Hong Kong, the United Arab Emirates and Saudi Arabia.
The UK’s Crown Dependencies and Overseas Territories like Cayman Islands, BVI and Jersey, among others, scored poorly as well, as a result of their negligible or nonexistent corporate tax.
On the other side of the spectrum, Australia, Albania, Canada, Iceland, Japan, Norway and San Marino have passed with flying colors and will not undergo further screening.
The next step in the process is to take a close look at those jurisdictions that stood out based on the aforementioned scoreboard to determine whether or not they play an active role in assisting multinational company tax avoidance.
According to the EU, countries marked for screening will be involved and allowed “to react to any concerns raised or discuss deeper cooperation with the EU on tax matters.” Countries that fail to cooperate or participate in discussions with the EU over ameliorating tax governance will make it onto the final list.
The final list should be released in March 2017.
Reactions to the Scoreboard & Upcoming EU Tax Haven List
For the most part, reactions to this scoreboard have been negative.
The Greens in the European Parliament condemned the set of indicators and urged the EU to include European Member States in the screening process.
In a blog post released on September 19th, the Greens said, “It is regrettable that a similar exercise hasn’t been done for European Member States,” adding that “given the role played by some European countries in recent tax scandals (like Ireland with Apple or the Netherlands and Belgium with IKEA), it is nonsense to only focus on third countries when attempting to clamp down tax evasion and avoidance.”
The article goes on to warn that “there is a huge risk that the whole process is turned into a highly political and diplomatic exercise, leading to only a few small countries being blacklisted.”
Fabio De Masi, a German MEP, also believes politics might in the end skew the list.
“It’s good if we can have Panama on the list,” he told the EU Observer, “but it’s pivotal that the US is included.”
Given the US’s economic strength, De Masi thinks “the EU must put pressure on it to change its laws.”
Otherwise, if the US is left off the list, he says, it could have a negative impact on the entire exercise as it “could just motivate business to set up shop in Delaware and Nevada."
Likewise, Jim Brundsen, in an opinion piece for The Financial Times, remains skeptical of the entire process.
He writes that this set of indicators reveals “that working on tax blacklists is like being asked to organise an office party: it is impossible to keep everyone happy.”
Given the EU’s experience with the short-lived 2015 blacklist, the EU created this scoreboard, “which is public, transparent, and acknowledges the issues with big countries.”
However, he posits, “the risk is that it can be seen as all too similar to a draft blacklist by powerful nations that the EU needs as allies when it comes to curbing global tax avoidance.”
Brundsen goes on to conclude, “Drawing it up will be a political minefield.”
To take a look at the scoreboard and each country’s ranking, check HERE.