The European Commission has released a list of 81 countries which they have pre-assessed with a view to possible screening over their tax policies and tax agreeements, which will ultimately form the basis of a global tax risk register
Still at the early stages, the list simply provides an overview of current risk factors and it is now up to EU member states to choose which countries should be screened more fully over the next months from a preliminary list of 81 countries.
To create the initial scoreboard, all non-EU countries and tax jurisdictions in the world were analysed to determine their risk of facilitating tax avoidance. This pre-assessment was based on a range of neutral and objective indicators, including economic data, financial activity, institutional and legal structures and basic tax good governance standards.
There are 81 countries on the list, many flagged for risk factors around tax transparency and existence of preferential tax regimes, including the US, Singapore, Hong Kong, the United Arab Emirates and Saudi Arabia.
Australia is given a clean bill of health, as are Albania, Canada, Iceland, Japan, Norway and San Marino.
Jersey, Guernsey and the Isle of Man are cited as a potential risk due to their corporate income tax basis although this is a jurisdictional choice and beyond the EU perview, as are UK crown dependencies, including Bermuda, Cayman Islands and the British Virgin Islands. All conform with the automatic exchange of tax information rules.
But the European Commission stresses that ‘the pre-assessment does not represent any judgment of third countries, nor is it a preliminary EU list. Countries can feature high in the scoreboard's indicators for a number of reasons, even when they pose no threat to member states' tax bases’.
The risk indicators are:
- transparency and exchange of information, ie, exchange of information on request and automatic exchange of information for tax purposes;
- existence of preferential tax regimes identified by the Commission on the basis of publicly available information (IBDF, national websites, etc.); and
- no corporate income tax or a zero corporate tax rate.
As a first step, the scoreboard presents factual information on every country under three neutral indicators: economic ties to the EU, financial activity and stability factors.
The jurisdictions that feature strongly in these three categories are then set against risk indicators, such as their level of transparency or potential use of preferential tax regimes.
The EU will work closely with the OECD during the listing process and will take into account the OECD's assessment of jurisdictions' transparency standards.
The pre-assessment was presented to member state experts in the Council Code of Conduct Group on Business Taxation on 14 September.
The final list of countries flagged for screening will be compiled in January 2017, with a view to having a first EU list of non-cooperative tax jurisdictions before the end of the year.
The new EU listing process is part of the EU's campaign to clamp down on tax evasion and avoidance and promote fairer taxation, within the EU and globally. It was first proposed by the Commission in the External Strategy for Effective Taxation in January 2016, and endorsed by EU finance ministers in May.
The new system will entail identifying and profiling of countries, screening for potential poor tax governance and in the ‘last resort’, countries that refuse to cooperate with the Commission will be placed on a so-called listing, essentially a blacklist of worst practice in tax governance.
On the basis of scoreboard results, the screening of third countries' tax good governance standards will be carried out by the Commission and the Code of Conduct Group. There will be a dialogue process with the countries in question, to allow them to react to any concerns raised or discuss deeper cooperation with the EU on tax matters.
Non-compliant nations that refuse to cooperate or engage with the EU screening process will be included on the common EU list, although this is intended as a ‘last resort’ option, the Commission stated, adding that ‘it will be a tool to deal with third countries that refuse to respect tax good governance principles, when all other attempts to engage with these countries have failed’.
The first list of non-cooperative jurisdictions will be published by the end of 2017. Member states have already given their backing to this approach, which is also supported by the European parliament.
Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, 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.’
The EU list of third country jurisdictions scoreboard is available here