The European Union War on Tax CompetitivenessSimon Owen, TEP.

In what has become an increasingly tedious campaign of anti-offshore rhetoric by the International Consortium of International Journalists (ICIJ), The Guardian’s latest article targeting so-called tax havens is yet another great example of imbalanced and misleading journalism.

With another sensationalist headline worthy of the gossip pages, they never fail to disappoint:

“MEPS vote to add the Channel and British Virgin Islands to tax haven blacklist.”

https://www.theguardian.com/world/2021/jan/22/meps-vote-to-add-channel-and-british-virgin-islands-to-tax-haven-blacklist.

Putting aside the usual melodrama and poetic license, it’s firstly worth clarifying what EU MEPs actually voted on – which is very different to what the headline infers.

As the article itself later confirms, they did not vote to add the the likes of Cayman Islands and the British Virgin Islands to the EU blacklist. They simply voted to confirm that: “Britain’s overseas territories should now be screened for potential inclusion on the list”.

As those of us involved in the industry are acutely aware, jurisdictions such as the Cayman Islands, Bermuda and the British Virgin Islands are continually “screened” by the EU. Those jurisdictions, along with other British Overseas Territories (BOTs) and Crown Dependencies (CDs) have also met their requirements to date, which is exactly why they are not on the EU blacklist.

Therefore, it would appear that both the media and the voting MEPs have, once again, ignored the fact that the key British Overseas Territories and Crown Dependencies operate under some of the most stringent anti-money laundering laws in the world, have introduced full beneficial ownership registers and, more recently, have implemented “Economic Substance” laws at the behest of the EU and OECD.

The latter, which is tax transparency driven, further enhances the standing of compliant jurisdictions as they seek to eradicate any abusive and harmful practices, such as “base erosion profit shifting” (BEPS). By doing so, it is certainly arguable that a number of tax neutral jurisdictions are now amongst the most highly regulated and transparent financial services centres globally.

With the above in mind, it is far from inconceivable to assume that continued attempts by the EU to unfairly tarnish the reputation of low tax or tax neutral jurisdictions is purely competition driven. Furthermore, it is telling that the various EU task forces and committees conveniently restrict themselves from taking the same punitive measures against its own member states – many of which that are well-known to operate tax incentivised programs to large corporations at a reduced rate of transparency.

On a positive note, it’s worth remembering that the EU blacklisting does not affect the ability of targeted jurisdictions to trade with the rest of the world – the Americas, Asia, MENA etc – which continue to be the mainstay of offshore business. Moreover, despite the aggressive rhetoric in the article, nor does any future blacklisting automatically restrict us from trading with individual EU member states from doing business as we do today.

In fact, each EU member state would have to separately and specifically choose to legislate and impose their own restrictions against each listed listed jurisdiction – which may not so appealing when taking into consideration that tax neutral jurisdictions often facilitate a significant proportion of inwards investment into some EU member countries.

In summary, if we really get to the crux of the article, it’s embarrassingly clear that this latest move by the EU is purely politically motivated. The article does very little to detract from this.

Despite the considerable efforts by the BOTs and the CDs to work together with the EU and OECD to help eradicate illicit finance and tax abuse, it was never really a true partnership.

To use an analogy, let’s assume that the BOTs and CDs were invited to a party at a private members club – all as guests of the UK. However, when the UK realized they’d had way too much to drink and decided to go home early, the BOTs and the CDs were handed their coats and swiftly escorted to the nearest taxi rank.

In closing, the unfortunate moral of this story is exactly what many of us in Cayman and other jurisdictions had always feared:

Conceding everything will never be enough.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of any of the companies within the Hyperion group of companies.

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