Critics of the EU’s Tax Haven Blacklist Argue that It Weaponizes Tax Rules

Tax havens have always been filled with controversy. The most common argument against tax havens is that they take away taxable income that could benefit the country. The most common argument in favor of them is that it is perfectly legal, and companies or high-net-worth individuals who use them still pay taxes. There is yet another argument in favor of tax havens, or at least against the EU’s blacklist of tax havens, that it weaponizes tax rules.

EU Members Do Not Appear on the Blacklist

One of the strongest points in the argument that the tax haven blacklist weaponizes tax rules is that even when European Union member states have incredibly low tax rates or others consider them to be tax havens, they do not get blacklisted. Some examples include Ireland, the Netherlands, and Hungary.

The Netherlands alone has around 13 billion euros laundered through it, according to a 2019 study. Additionally, there have been numerous criticisms of Ireland and taxes, especially regarding Apple. Hungary has a corporate tax rate of just 9 percent, which is typically low enough for a country to gain criticism.

At the same time, the European Union lists many countries from outside its member states that have similar tax regulations as those previously mentioned member states.

The List Is Not White and Largely Colonies

Another argument against the tax haven blacklist is the traits that the listed countries share, excluding their taxation status. Specifically, few (or frequently none) of the countries are majority-white nations. Additionally, most of them are previous colonies of European Union member states, meaning the EU already has a history of exploiting them.

The Pattern of Countries That Are Excluded From the List

The topic of race highlights a related issue that member states do not appear on the blacklist – the fact that predominantly white countries with their own tax avoidance problems are not usually on the list. Russia, the United States, the United Kingdom (pre- and post-Brexit), and Gibraltar are all notable exceptions. They all have at least some tax haven tendencies yet have not appeared on the EU blacklist.

Another category of countries that do not appear on the blacklist includes those that are powerful. This has some overlap with the previously listed ones, such as the US, the UK, and Russia, but it also includes Saudi Arabia. Saudi Arabia has notably faced accusations of financial terrorism, but it is a very powerful and influential country. Thus, it has not been on the list.

Some Listed Countries Are Compliant According to Others

Yet another concern regarding the blacklist is the differences between the EU’s blacklist and those from other organizations, such as the Financial Action Task Force or the OECD. The OECD considers both American Samoa and the Cayman Islands “largely compliant,” while the Financial Action Task Force considers Trinidad and Tobago, Vanuatu, Iraq, and Afghanistan compliant, yet all of those countries were on the EU’s list until recently.

What Opponents to the Blacklist Suggest

Those who oppose the EU’s blacklist point out that the member states essentially use the tax haven blacklist to reduce competition with countries with lower tax rates. These critics argue that given the uneven requirements for inclusion on the blacklist, it is clear that the EU targets specific groups of countries.

Those critics argue that this turns the sanctions into the weaponization of taxes and economic warfare. After all, the unevenly applied sanctions hurt the economies of the blacklisted countries. The critics say a better alternative would be for EU countries to take other steps to attract businesses, such as reducing their own tax rates.

Sources:

https://www.ft.com/content/a9f8ad3e-55f6-42c2-8bda-b08bae5adb37

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