The chaotic way in which the European Union has arrived at its 30-strong blacklist of tax jurisdictions is already under fire, not least from its victims.

On the list are Andorra, Liechtenstein, Guernsey, Monaco, Mauritius, Liberia, the Seychelles, Brunei, Hong Kong, the Maldives, Cook Islands, Nauru, Niue, the Marshall Islands, Vanuatu, Anguilla, Antigua and Barbuda, the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, Cayman Islands, Grenada, Montserrat, Panama, St Vincent and the Grenadines, St Kitts and Nevis, the Turks and Caicos Islands and the US Virgin Islands.

Hypocrisy rocks!

Cayman Financial Services Minister Wayne Panton said in a press release: “The EU’s blacklist is based upon the individual, national blacklists of EU countries. We are aware that major European economies, which have been rated similar to the Cayman Islands on upholding international standards on transparency, do not list our jurisdiction."

He went on: "The national blacklists that have resulted in this overall blacklisting are primarily generated by European countries that are not major economic trading partners of the Cayman Islands. These countries therefore may not be aware of Cayman’s adherence to standards, both in terms of our bilateral and multilateral agreements for exchange of information.

"Save for Bulgaria, we have exchange-of-information mechanisms with all of the jurisdictions that have blacklisted Cayman."

Cayman Finance, whose job it is to promote the islands' services, argued: “It is not clear what standards have been used by these 11 countries to come to such a conclusion, in particular when the Cayman Islands has exchange of information mechanisms in place with all but one of these countries."

Distracting attention from Lux Leaks

Cayman Finance went on: "Critics are saying the list is an attempt to distract [attention] from the EU’s need to tackle its own issues with tax avoidance [including] deals with the tiny EU state of Luxembourg that saved some of the world’s largest companies, including Apple, IKEA and Pepsi, billions of dollars in taxes.

"The dealings in Luxembourg have been particularly embarrassing for Jean-Claude Juncker, now the head of the European Commission, who was the small duchy’s premier when the deals were made.

"The EU is also looking to build on existing probes into the tax dealings of Apple in Ireland, Starbucks in the Netherlands and Amazon and Fiat in Luxembourg."

More damning observations came from Bermuda's minister of finance, Bob Richards, who called the blacklist "unjustified and baseless," adding: “The criterion for inclusion was if 10 or more EU member states had listed a country on their national black-list. 11 EU Member States have Bermuda on their national black-list.
 
“Bermuda has signed a large number of tax information exchange agreements with countries around the world and today has 80 treaty partners because of signing the Multilateral Tax Convention (a multilateral TIEA).
 
“Those 80 partners include all G20 countries, all OECD countries except for one, and all EU countries except for two because those three countries have not yet signed the international standard on tax matters, the Multilateral Convention.

"At least five of those 11 EU member states that have us on their national blacklist have not performed their obligations in one way or the other. Two of the five [have still] to give beneficial recognition to the Multilateral Tax Convention in their blacklist criteria, one is still in the process of considering recognition of the multilateral convention, one has not kept their promise to send Bermuda documents to sign to take us off their list, one which is one of the two EU member states I earlier mentioned has not even signed up to the Multilateral Tax Convention, and one publicly announced earlier this year that it had taken Bermuda off its blacklist. We have been waiting for their co-operation. It is surprising then that we would be labelled as 'unco-operative.'

A jumble of impulses

"A closer scrutiny of this latest development reveals something wrong with this process. Not all EU members agree on how they compile their blacklists. Some are based on a combination of tax transparency concerns and low tax rates; others are triggered by low tax rates alone, and some are triggered by a lack of a tax information exchange agreement."

He went on to say that any national list whose trigger included low or no income tax should be disqualified, as a sovereign state's determination of its own level of income tax was quite all right according to the UN, the World Trade Organisation, the International Monetary Fund, the Organisation for Economic Control and Development and the Group of 20 Industrialised Nations (actually a group of 19), adding: "If there had been [any] consultation we would have had the opportunity to point out that at least 5 of the 11 countries named as black-listing Bermuda had either not performed their obligation required to consummate a tax information exchange agreement with Bermuda or had failed to keep their promise made to Bermuda to amend their legislation to remove us from their blacklist.”

The London Independent reports: "The [European] Commission says the current corporate tax rules in the EU date from the 1930s and that a company operating across borders in the EU pays on average 30% less tax than a company operating in only one." This is as maybe, but the fact remains that the EU has thrown itself into a fight against (essentially legal) tax avoidance, spearheaded by the UK.

Then comes the criticism from Guernsey, a jurisdiction that was placed on the list without being joined by its sister-jurisdiction of Jersey. The Lawyer, a British magazine, claims that it was included 'by accident.'

Jonathan Le Tocq, the first minister of the isle, thought it disingenuous of the commissioner in charge of the blacklist, Moscovici, to have enthused about Guernsey just over a month ago, only to oversee its blacklisting now. He pointed out that his island was ahead of many EU countries in 'tax transparency' and co-operation and was going to be an 'early adopter' of the Common Reporting Standard (unlike the EU's Austria) and therefore was "well ahead of the full EU 28."

Achievements overlooked

The island government also feels aggrieved at not having been given credit for voluntarily adhering to the principles of the Code of Conduct on Business Taxation, which has been formally endorsed by the Code Group, or for volunteering to follow the EU Savings Directive and for exchanging information voluntarily from 2011 onwards. This means that information relating to accounts held in Guernsey by individuals resident in any EU Member State is now automatically sent to their home jurisdiction each year.

The EU blacklist is a sort of consolidation of national tax blacklists as they stood six months ago and includes any jurisdiction on 10 or more member states’ lists. Guernsey, however, is only on 9, though it is included because Sark – for which it has no legal responsibility in tax matters – appears on another blacklist. Needless to say, the island's government is accusing Moscovici of being arbitrary and inconsistent. The Isle of Man and Gibraltar, both nowhere to be seen on the EU blacklist, are also on 9 national ones.

Tax Justice, meanwhile, has commented that tax-haven blacklists "tend to include ‘minnows’ but not the big fish."