European officials have told 53 countries and territories that they risk being blacklisted as tax havens after the UK earlier delayed warnings to a dozen jurisdictions with ties to Britain.
In October Brussels advised 41 countries that they would be blacklisted unless they promised to change their tax rules, according to people close to the talks. But British concerns caused the EU to hold back similar warnings for 12 more jurisdictions including Bermuda, the Isle of Man and Cayman Islands — what one official called the “usual suspects”. London changed its stance late last week, two days before the Paradise Papers leak put the issue of global tax legislation back in the spotlight.
The European Council, made up of EU member states, started analysing non-EU countries last year to decide if they should be designated as tax havens, sending inquiry letters to 92 jurisdictions in February after initial screening.
The council has set criteria for countries to avoid being labelled as tax havens. Its definition of fair tax rules says jurisdictions should not offer preferential tax measures or arrangements that enable companies to move profits to avoid tax. Countries should also meet transparency standards and implement anti profit-shifting guidelines set by the OECD.
Countries that fail to meet the council’s criteria can avoid being blacklisted if they provide a political commitment and a specific plan to comply. Representatives from all 28 EU member states will need to approve the final list, which is expected to be published on 5 December.
Member state representatives are still debating the implications of being on the EU’s list, which will be updated annually.
A British government spokesman said: “The UK has led international efforts to prevent people from hiding their money abroad. We support the development of a common EU list of non-co-operative jurisdictions, and we are working constructively with our European partners towards finalising one by the end of 2017.”
Molly Scott Cato, a Green MEP and a member of the European Parliament’s Panama Papers committee, said: “Once again, the UK and its offshore territories are at the heart of things.”
She said Britain had to “clean up its act” and regulate the “legal limbo” of its overseas territories if it wanted a positive trading relationship with the EU after Brexit.
The steps taken by the European Council come after criticism of a previous European Commission attempt to create a tax-haven blacklist for the EU. Published in June 2015, the commission’s list included 30 countries, composed of those that appeared on at least 10 member states’ individual blacklists. The list provoked a backlash for being unfair and arbitrary.
The current attempt by the council has also been criticised. Elena Gaita of Transparency International, a lobby group, said the council’s code of conduct group on business taxation, which is running the process, “is the most secretive council group — the council’s black box”.
She said blacklisting countries was “a political process” and that secrecy risked creating a list that was “far from objective and comprehensive”.
Of the 92 jurisdictions that were sent letters in February, 22 proved they were compliant with the EU demands. Eight said they would change their laws to comply, one is still being assessed and eight did not respond. The rest failed to meet at least one criteria, according to people close to the process.