The Big Debate: How Credible are Tax Haven Blacklists?

By Paul Byles, Director, FTS, Cayman Islands (31/07/2018)


In order to assess whether tax haven blacklists are credible, we need to take a closer look at the foundation on which these lists tend to be created:

1. The idea of ‘harmful tax competition’, when applied to certain IFCs, is flawed

Companies finding ways to structure their affairs to avoid multiple layers of taxation for the same transaction, while abiding by the laws in all the respective countries, is not harmful tax competition. In fact, it is not competition at all if the offshore jurisdiction does not purposely set its tax policy as a means to attract business. There are several examples of countries which have historically had no, or very low tax for domestic policy reasons – long before the offshore financial world was even conceived. Far from being a ‘race to the bottom’, IFCs, such as the Cayman Islands, are not in a race at all. The idea of a race implies that the Cayman Islands somehow predicted this competition over 200 years ago and devised a system to try to ‘win’ today!

What’s more, a simple Google search of ‘EU lowest corporate tax’ will reveal examples within the EU/OECD where countries have purposely reduced their corporate tax rates to attract new investment (to create jobs) and curiously this intentional policy move is not regarded as either ‘harmful’ or ‘competitive’.

2.  Without a credible whitelist, there can be no credible blacklist

For there to be a blacklist, there must be a corresponding ‘whitelist’.  On that whitelist we would expect to see a list of countries that have all met some agreed global standard. In the case of the EU, what we are seeing is a mixed group of countries – some of which meet standards and others that do not – getting together as a ‘bloc’ and blacklisting countries located outside the group. As an example, Oxfam points out that several EU countries should be on the EU’s recent blacklist when assessed by the EU’s own criteria.

However, there are examples of IFCs that have in place 100 or more cross-border agreements (the Common Reporting Standard, FATCA, the EU Savings Directive etc.) to share information which aids tax authorities in EU and OECD-based countries, yet those IFCs have not been placed on the whitelist (because some still face a threat of being placed on the blacklist).

If there is no true whitelist demonstrating that each member of that list has met all of the imposed global standards, there can never be a credible blacklist.