Spot the tax haven? Avoiding the blacklist is a game for zero tax countries

The EU’s latest ‘blacklist’ for tax havens has just been released, but some of the biggest names are not on the list. Certain territories are getting away with offering 0% tax rates – meaning multi-billion dollar corporations who register there can pay no tax (while the rest of us are contributing our fair share).

It’s time for the EU to take its own blacklist seriously and stop treating tax avoidance like a game, write Kira Peter-Hansen and Ernest Urtasun.

Twice a year, European countries get together to decide which countries outside of the EU are going to make it into the so-called ’blacklist’, a list of the biggest tax havens in the world. The threat of being added to the tax haven blacklist is supposed to dissuade countries from offering low tax rates as a perk for corporations. Tax havens rob all of us from the benefit of tax money that should rightfully be paid in countries where these corporations actually do business.

The newest version of the EU’s tax haven blacklist came out today. There are some conspicuous names missing from the list: the Cayman Islands, Jersey, the Bahamas, the Isle of Man. These are all countries that offer corporationsa tax rate of 0% but they have not been blacklisted. There’s a game being played behind the scenes, and ordinary people are on the losing side. Let’s look into what’s really going on here.

What is a tax haven and why tax havens are bad ?

Tax havens are countries that offer extremely low tax rates to giant multinational corporations and rich individuals to help them avoid taxes in their home countries, where they would traditionally pay a fairer sum. 

So, for example, a well-known Swedish furniture brand can do most of their business in Sweden but base their headquarters in the Cayman Islands or Jersey. Does that mean that they are transferring their business to the middle of the Caribbean Sea? Not at all. What it means is that they are setting up a fictional office on a tropical island and claiming that they make all of their money there so that they can benefit from the 0% tax rate. So, while the workers of the Swedish furniture brand are diligently paying their taxes in Sweden, the owners are using a tropical paradise to escape the taxes they have to pay.  

Why are some of the world’s biggest tax havens missing from the EU’s blacklist?

In 2017, the EU started collecting the names of some of these countries that offer special benefits to the super rich in the tax haven list. The blacklist is supposed to be a tool for the EU to fight tax avoidance and to name and shame countries who create unfair tax competition.

But the catch is that they leave out some of the biggest players in the tax benefit world. Why? Because the criteria for who should be put on the list are too weak. If you don’t believe it, look at the tax haven blacklist from October. The Cayman Islands, the Seychelles, Jersey, the British Virgin Islands and other countries that offer corporationsa tax rate of 0% were missing from the blacklist. Another example is Switzerland. Even with scandals like the Suisse Secrets, Switzerland benefits from the weak criteria and isn’t listed as it should be.

There is also a weaker version of the blacklist called the grey list. It’s the blacklist’s little sibling. The grey list is for countries whose tax practices warrant further scrutiny, but who have at least made some commitment to change. Countries entering the grey list are fully aware that this is happening and they get a warning from the EU, but their intention to change their tax systems gives them a pass out of the blacklist.

If this doesn’t sound fair, it’s because it isn’t at all. Turkey has repeatedly failed to comply  with the criteria or change its tax system, but it has managed to avoid the blacklist for years now. South Dakota in the US also gives preferential tax deals to corporations. But the US is far from appearing on the blacklist, despite playing a big role in the Pandora Papers and the European Parliament asking for it to be added. Bermuda, the British Virgin Islands and the Bahamas offer big corporations a 0% tax rate but are still only making it onto the grey list because they manage to jump through the right loopholes.

How can we fix the EU’s tax haven blacklist?

All this means that the blacklist is being undermined. It should be a strong tool to fight against tax avoidance and unfair tax competition in the world. But right now it feels like a game of hide and seek, where it’s too easy for countries to be let off the hook. 

We have repeatedly asked for the criteria for blacklisting tax havens to be stronger. We’ve also called for the list to be updated in a way that is both transparent and accountable, to put an end to the political games.And we are not alone in this, the European Parliament has demanded the list be revised multiple times.