For years, the European Union has maintained a blacklist of jurisdictions that it considers tax havens. The Cayman Islands was previously on this list, but as of October, this is no longer the case. It was on the EU’s blacklist in February, becoming the first United Kingdom territory to do so.
The Change and Reasons
The official list refers to the jurisdictions as “non-cooperative for tax purposes,” but it is commonly referred to as the list of tax havens, as that is what they are. By removing the Cayman Islands from the list, the European Union indicates that they no longer feel the territory welcomes tax evasion or lacks transparency.
The official announcement from the European Council says the move to take the jurisdiction off the blacklist is thanks to its efforts. Specifically, it cited the new reforms the Cayman Islands made in September to its Collective Investment Funds’ framework.
The Cayman Islands’ removal from the blacklist is not a surprise to some. As soon as it was on the blacklist, the government indicated it was talking to the European Union to get off the list.
Tax Haven Criticisms
A great deal of debate fills the conversation around tax havens. Those opposed to tax havens say that they take away potential funds from the government that the countries in question could use to help their people. They also argue that tax havens actively encourage high-net-worth individuals and corporations to avoid paying taxes via legal loopholes.
The other side of the argument typically refers to the fact that tax havens are completely legal and still contribute to the local economies by promoting business. They also point out that the high-net-worth individuals and companies in tax havens typically pay some taxes, which the jurisdiction in question would not otherwise receive.
Furthering Criticisms of the Blacklist
There are many critics of the European Union’s blacklist. Many argue that the organization does not fairly incorporate some jurisdictions that should be there yet enters others that should not be. These arguments frequently point to member nations, like Ireland or the Netherlands, known for low tax rates yet not on the list. Or they point to the fact that major world powers, like Russia and the United States, are not on the list.
With the EU removing the Cayman Islands from its blacklist, these criticisms have only worsened. Alex Cobham, the Tax Justice Network’s Chief Executive, wrote on Twitter that this decision either shows the EU blacklist is inept or that the Cayman Islands’ lobbying efforts have paid off.
This comes from the fact that the Tax Justice Network currently ranks the Cayman Islands as the worst jurisdiction in the world on its Financial Secrecy Index. Not only does the organization consider the Cayman Islands to be the worst tax haven, but it is also considered the third worst in terms of allowing corporations to avoid tax. Only Bermuda and the British Virgin Islands beat it.
Chiara Putaturo, the EU Tax Policy Advisor at Oxfam, similarly described the Cayman Islands’ to be among the world’s worst tax havens. She further stated that clearly, the process is not working as it should with the removal of such a notorious tax haven.
Other Changes to the Blacklist
In addition to the Cayman Islands, the European Union removed Oman from the tax haven blacklist at the same time. This came after ratifying recent OECD conventions and working towards exchanging information with the Member States. Meanwhile, Barbados and Anguilla were both added to the blacklist.
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