Time For Real Tax Cooperation

The political reason for this is obvious - the EU will not blacklist its own members. Meanwhile, jurisdictions such as Guam and American Samoa – which few would consider to be among the world’s biggest ‘tax havens’ – have been included on the blacklist for years. This raises fundamental questions about the fairness and consistency of the list, as well as serious doubt about its effectiveness. A blacklisting process that only applies to some jurisdictions will not solve the problem. Instead, it risks simply moving the tax haven industry from some countries to others (including from outside the EU to within).

Shortly after the UK left the EU, in February 2020, the EU added the Cayman Islands to the blacklist. And while this jurisdiction does cause great concern with regards to tax matters, the blacklisting process continues to raise questions This includes whether the criteria to determine “non-cooperation” are really the appropriate ones to be used, and if the EU itself can really be considered as being “cooperative”.

The EU’s official blacklisting criteria put emphasis on whether or not jurisdictions follow international tax standards, including the OECD and G20’s agreement on Base Erosion and Profit Shifting (BEPS). However, the BEPS standards have been repeatedly criticised as being ineffective in stopping international corporate tax avoidance.

Furthermore, less than five years after the BEPS package was adopted, the OECD is leading a new negotiating process to review the international tax rules once again. While the official reason for initiating another round of negotiations was to address the digitalisation of the economy, the scope quickly expanded to include more general concerns with the system. In the 2019 work programme for the negotiations, it was noted that certain countries consider that the measures set out in the BEPS package “do not yet provide a comprehensive solution to the risk that continues to arise from structures that shift profit to entities subject to no or very low taxation”. In line with these concerns, the negotiations now include the issue of whether to introduce a global minimum effective corporate tax rate to address continued corporate tax avoidance. This is a very important and positive development. But in order for the negotiations to end with the adoption of strong rules that can effectively address the problem of corporate tax avoidance, governments will have to show a level of political will and ambition of which we have not yet seen any trace. Furthermore, it is an ongoing concern that the realities and interests of especially smaller developing countries continue to be very marginalised or outright ignored in the negotiations.

Another related concern is about the way the BEPS standards were developed. Many of the developing countries now being threatened with blacklisting, if they fail to follow these standards, were not actually invited to the table when they were being negotiated. In fact, while European countries played a central role in the negotiations, more than 100 developing countries were excluded from the process through which the BEPS package was developed and agreed.

In response, a large group of developing countries has called for international tax negotiations to take place at the United Nations, where all countries can participate as equals and where negotiations can be led by a neutral Secretariat. Yet, this proposal continues to be rejected by the EU, United States, and a number of other OECD countries, who instead would like to see global standard setting to continue taking place at the OECD. These rejections give rise to concerns about whether OECD countries are really willing to be cooperative when it comes to international tax standard setting.

OECD countries are instead calling on countries to join negotiations at the OECD through a body known as the “Inclusive Framework”. This body was set up after the BEPS package had been agreed and is now the place where the new international tax rules relating to digitalisation of the economy and a minimum effective corporate tax rate are officially being negotiated. All countries can join, but in order to do so, they have to fulfill a number of conditions, including committing to following the BEPS rules that have already been agreed. Furthermore, the negotiations continue to be led by the OECD Secretariat which still answers first and foremost to its own members.

Another factor of note relates to the way that some countries effectively built up the political pressure which caused the new international negotiations to begin in the first place. A number of OECD countries, including EU member states such as France, threatened taking unilateral action and introducing different types of corporate “digital tax” rules, which are not part of the international standards. The underlying political concerns driving these unilateral initiatives relate to dissatisfaction about corporate tax avoidance, which is a very real and understandable worry. In fact, one could even argue that all countries should have the right to impose unilateral actions when being exposed to high levels of corporate tax avoidance. However, there is a lack of consistency in approach when EU member states blacklist countries for not following tax international standards on the one hand, while threatening unilateral actions when they themselves are unhappy with the failures of these standards on the other.

In summary, international tax politics continues to be a case of power-politics, rather than of genuine international cooperation. The result is a highly politicised environment of conflicts, arbitrary blacklisting, unilateral action, flawed international tax rules and tax uncertainty for everyone (businesses as well as individuals and governments). When it comes to international tax cooperation, it is high time for the most powerful players, including the EU, to take a critical look at their own performance and commit to strengthening true international tax cooperation on all fronts.

Tove Maria Ryding
Tove Maria Ryding leads the tax justice team in the European Network on Debt and Development (EURODAD) - a network of 59 non-governmental organisations from 28 European countries working on issues related to debt, development finance and poverty reduction. She coordinates policy and campaign initiatives focused on making multinational enterprises pay their fair share of tax. Eurodad is one of two European representatives in the coordination committee of the Global Alliance for Tax Justice, as well as a member of the coordinating committee of the Financial Transparency Coalition. Co-author of Tax Games, the Race to the Bottom and Survival of the Richest.