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Not So Cooperative!

This week, the Council of the European Union published its latest EU list of non-cooperative jurisdictions for tax purposes, with two jurisdictions removed and another two added. While the jurisdictions added to the list might not raise some eyebrows (Anguilla and Barbados), one of the jurisdictions delisted has already spurred some debate. Indeed, the Cayman Islands are no longer considered by the EU as a territory “that encourages abusive tax practices” after it “adopted new reforms to its framework on Collective Investment Funds in September 2020”. In its commentary, the OCCRP highlighted that the EU delisted the jurisdiction “despite its status as one of the world’s most secretive and low tax jurisdictions,” while highlighting that the list has been created in order to tackle major issues such as money laundering or tax fraud/evasion.

So, is the debate on the EU list warranted?

In last week’s blog post, we found out that the beneficiary banks of the suspicious transactions identified in the FinCEN Files were located in various countries around the world, some of them well known for being money laundering hotspots. The Cayman Islands was identified as the 9th country of destination for those notorious financial flows, making the Council’s decision a little bit questionable to some knowing one of the three main goals of the list is to tackle the “concealment of origins of illegally obtained money”.  Some, including the OCCRP, have suggested that the list criteria is “flawed” as the jurisdiction is ranked as the third greatest enabler of corporate tax avoidance on the Corporate Tax Haven Index.

In light of the UN Economic Development in Africa Report 2020 released last week - which identifies objectively, independently and efficiently the countries facilitating money-laundering - tax evasion and the concentration of untaxed wealth are key challenges for rich countries facing COVID-19 pandemic, but even more for developing countries facing huge health, sanitary and corruption issues. African countries lose an estimated $88.6 billion each year in illicit financial flows, with tax evasion and fraud being a comprehensive part of that amount and secrecy jurisdictions that encourage less transparent investment funds enabling it. That money, serving the interests of a very few, is a true systemic problem since it prevents developing countries from investing in solid and adequate anti-corruption policies or from spending more for the substantial improvement of the health care systems, both of those being part of the UN Sustainable Development Goals (SDG).

Incontestably, the EU could play a leading role in the fight against tax evasion and financial secrecy through its list of non-cooperative jurisdictions for tax purposes.  However, critics often argue that the perpetual exposure of EU institutions and bodies to political and economic lobbying, along with a methodology that is in question, makes the list less effective. It is possible that a supranational body, fully independent and non-politically driven could draw an unbiased list. However, we could expect that countries listed in such a list might never recognize the legitimacy of it.


Martin Macq
Senior Analyst at Sigma Ratings

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