Less than two months after being published, the controversial EU blacklist of ‘uncooperative’ tax jurisdictions has seen the departure of 8 of its 17 members.
South Korea, the UAE and Panama are among the lucky eight being let out on parole and put in a ‘grey’ list.
The countries that have been removed from the blacklist had apparently made unspecified promises to correct their tax policies in order to comply with EU regulations, and now are going to be watched closely by the EU to make sure the promises are being implemented.
The EU blacklist was launched in December 2017 and was harshly criticised for a vague method of identifying the culprits and a politically biased approach.
Being on a blacklist of such kind is usually bad news for both jurisdictions and the investors with interests in the blacklisted territories.
The countries on the EU blacklist face restrictions in receiving EU funding and investments from the European Investment Bank.
In addition, the EU member states can also decide on imposing their own sanctions, based on the blacklist.
For example, being included in Portugal’s own extensive blacklist makes a country a very unattractive investment destination for Portuguese residents who become subject to the 35% increased rate of tax on investment income from the blacklisted jurisdictions.
Meanwhile, blacklisting is being adopted by various countries on a global scale but in a rather random fashion. Since there is no universally accepted method to identify and blacklist a jurisdiction for aiding tax evasion or avoidance, the process is unpredictable and the results are often a headache for investors.
For instance, Brazil blacklisted Ireland for its low corporation tax. However, some well-known jurisdictions with more business-friendly tax policies than Ireland haven’t been included. Consequently, investment funds in Dublin now pay higher tax on returns from Brazilian bonds and shares than competitor funds based, for example, in Luxembourg.
The inclusion of the UAE, an ever more popular offshore jurisdiction with global investors, in the December 2017 blacklist was one of the major disappointments. With the Emirates being on the blacklist, it is much harder for the EU citizens to transfer assets from the EU into the UAE, and there is more work involved when remitting funds out of the UAE. It also makes incorporating offshore in the UAE less attractive.
In addition, the blacklisted countries may no longer be used by EU institutions for international financial operations, and transactions involving them could be subject to closer scrutiny. That affects badly capital flows through the UAE, which is the Middle East’s main banking centre.
Therefore, it’s quite understandable that both investors and the eight jurisdictions feel quite relieved at the news of such a rapid de-blacklisting.