UK overseas territories could be affected by EU tax crackdown

Eight British overseas territories and crown dependencies, including Jersey, the British Virgin Islands and Cayman Islands, could face EU economic sanctions after Brussels identified them as having low or no corporation tax.

Experts have published a scorecard showing red flag warnings set against a list of the 81 countries that may attract companies or individuals seeking to avoid or evade European taxes.

The scorecard will be discussed among member states before a shortlist of countries is selected for further screening and whittled down to a definitive EU list of tax and secrecy havens, to be published at the end of next year.

In the meantime, discussions are under way as to sanctions that the EU could impose on countries included in the final list. Options being discussed include the introduction of additional taxes, known as “withholding taxes”, or the removal of tax deductions.

In a paper published in January, the commission said: “This would make it much less attractive for companies to invest or do business in these jurisdictions.”

Several countries apply such defensive measures to protect their tax base from tax havens. But Brussels hopes that the prospect of a coordinated move by EU member states would send a strong signal of Europe’s determination to address tax avoidance and evasion.

Of the 10 jurisdictions flagged on the scorecard for their low tax rate, eight are British overseas territories or crown dependencies: Anguilla, Bermuda, the British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey and the Turks and Caicos Islands.

The UK’s ability to influence discussions about which jurisdictions make it on to the final tax haven list will be limited following the Brexit vote. Britain has previously fought hard to protect the interests of crown dependencies and overseas territories in Brussels.
As well as red flagging countries with low tax rates, the European commission scorecard highlights 57 jurisdictions, including Hong Kong, Panama and Qatar, over concerns about low levels of financial transparency. There are 51 countries, including Barbados, Mauritius and Curacao, flagged for using “preferential” tax regimes to attract investment.

Pierre Moscovici, the European commissioner for economic and financial affairs, said: “The EU takes its international tax good governance commitments seriously. It is reasonable for us to expect the same from our international partners. We want to have fair and open discussions with our partners on tax issues that concern us all in the global community. The EU list will be our tool to deal with third countries that refuse to play fair.”

Gibraltar, Niue and Vanuatu are among several jurisdictions that do not appear on the EU scorecard, but they are nevertheless thought likely to feature in discussions among member states and may appear on the final list of tax havens.

No member states, however, will feature on the list, despite countries such as Ireland, Luxembourg and the Netherlands being well known for aggressive tax structures.

Instead, Moscovici wants to reform behaviour inside the EU by adopting a more coordinated approach to how member states tax multinationals.

These plans, known as the common consolidated corporate tax base, have met with fierce resistance, including from Ireland and the UK. Last year, the Treasury minister, David Gauke said: “The CCCTB has been around a very long time. It is a proposal still looking for a justification.”

Supporters of the policy hope that Britain’s eventual exit from the EU will remove an obstacle to what would be a major tax policy reform.