The latest update of the EU list of "non-cooperative jurisdictions" has exempted Seychelles, Anguilla and Dominica from being blacklisted.
The European Union has decided to remove Seychelles from its official blacklist of tax havens, despite the archipelago being named as one of the main destinations for offshore companies in the Pandora Papers, a massive trove of leaked data exposing the secret dealings of the wealthy elites.
The decision on Tuesday comes as economic and finance ministers from EU countries gathered in Luxembourg for a two-day meeting to discuss a wide range of issues such as the economic recovery, soaring energy prices and the recent uptick in inflation.
The EU updates its list of tax havens twice a year and the review was already decided before the International Consortium of Investigative Journalists revealed the fraudulent tax schemes that politicians, billionaires and celebrities use to buy property and hide their assets. But the coincidence of both announcements cast doubt over the bloc's efforts to crack down on tax evasion.
Based on confidential records of 14 offshore service providers, the Pandora Papers describe a complex network of shell companies, trusts and foundations that enable owners to conceal their identities from the public and even regulators. The papers point the finger at low- or no-tax jurisdictions such as Seychelles, the British Virgin Islands, Hong Kong, Belize, Panama and South Dakota as some of the most common destinations for these obscure entities.
Seychelles has now been removed from the EU's tax havens list, alongside two Caribbean island, Anguilla and Dominica. EU ministers made the move after the Organisation for Economic Co-operation and Development (OECD) ruled the three archipelagos were entitled to an additional review to assess their compliance with international standards on tax transparency and exchange of information.
Last year, Seychelles was downgraded from "largely compliant" to "partially compliant" when the OECD expressed concerns over the availability and access to information in its offshore sector – the very same sector exposed by the Pandora Papers as a breeding ground for tax evasion.
Seychelles, Anguilla and Dominica could be included again on the EU backlist if the OECD review fails to upgrade their current status.
'The blacklist is a sham'
With the latest update, the EU list of tax heavens shrinks from twelve to nine territories: American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu. Of all these, only Panama matches the revelations of the Panama Papers.
Brussels doesn't refer to these countries as "tax havens" and instead uses the less controversial term "non-cooperative jurisdictions" believed to "encourage abusive tax practices, which erode member states' corporate tax revenues".
Established in 2017 to fight tax fraud and money laundering, the blacklist is based on three criteria: transparency of information, fair tax competition and implementation of the OECD's Base Erosion and Profit Shifting (BEPS) minimum standards, a set of international rules to curb the shifting of profits from higher-tax to lower-tax jurisdictions.
The scheme can spare countries with zero-rate corporate taxation if they guarantee "that this does not encourage artificial offshore structures without real economic activity".
Besides the blacklisted territories, the EU also compiles information on countries with dubious tax governance. First, countries that cooperate with the EU and have already implemented commitments on tax reform, such as Belize and the British Virgin Island, which are mentioned in the Panama Papers, as well as EU neighbours like Switzerland, Andorra, San Marino and Serbia.
Secondly, countries that have committed to reform but do not yet fully comply with the EU criteria. This group includes names like Hong Kong, North Macedonia, Costa Rica, Qatar and Turkey, and are given different deadlines to adapt their legislation and eradicate their harmful tax regimes.
Since its entry into force, the blacklist has been criticised by policy-makers and civil society for being too narrow, too lenient and too feeble. The scheme only targets countries outside of the European Union, exempting member states like the Netherlands, Luxembourg, Ireland and Malta, which are often described as tax havens by international advocacy groups.
"The blacklist is a shame, it's a sham," Paul Tang, a Dutch MEP who chairs the Parliament's subcommittee on tax matters, told Euronews.
"It doesn't include the British Virgin Islands or the Cayman Islands or Bermuda. So the large offshore countries – large in terms of tax avoidance and money laundering – are not on the list. So it's a perfectly fine instrument that has been executed very poorly and doesn't really work."
Notwithstanding criticism, the EU believes the blacklist, and the publicity it attracts, can be leveraged as a tool for promoting tax reform around the world. But the criteria underpinning the index have inherent problems of weakness and fairness that allows for glaring omissions, says Chiara Putaturo, an inequality and tax policy advisor at Oxfam's EU office.
"Countries with a zero-tax rate like, for instance Anguilla, should be automatically blacklisted. This is not the case now. Then we should look at the real activity of companies. If, for example, there is a level of profits or revenue, as in the Cayman Islands, that is disproportionate compared to the employees of a company, then this country should be looked carefully," Putaturo told Euronews, adding her organisation was once again disappointed with the updated list.
"A lot of times we see that there are shell companies, letterbox companies, with really few employees but high levels of profits, and this should be a red flag for a suspicious tax avoidance practice."
Political storm and global reform
The Pandora Papers have once again reignited the public debate over the illegal privileges enjoyed by the elites. The investigation has brought several European leaders under fire, including Czech Prime Minister Andrej Babiš, Cyprus President Nicos Anastasiades, Montenegro President Milo Djukanovic, Ukrainian President Volodymyr Zelenskiy and former British Prime Minister Tony Blair.
The politicians are accused of using offshore structures and trusts to pay little or no tax at all and keep luxury items and bank accounts hidden from public authorities.
"I'm not surprised but still shocked to see that there are a lot of people, politicians, the Czech Prime Minister, the Dutch minister of finance, bankers, celebrities like Shakira, rubbing shoulder to shoulder with well-known criminals," Tang said. "To see that underworld come so close to the normal world, I find a bit shocking, still."
Wopke Hoekstra, the Dutch finance minister, is featured in the papers as having invested €26,500 through a firm based in the British Virgin Islands. Hoekstra said on Twitter he was not directly involved in the company's operations and had sold his shares before taking up his current position. He also admitted he should have paid more attention to his financial dealings.
But the minister's statement was not satisfactory enough for Manon Aubry, a French MEP who sits with The Left group. Speaking to Euronews in Strasbourg, Aubry condemned Hoekstra for taking part in the Luxembourg meeting that green-lighted the latest update of the EU tax blacklist, despite being himself named in the Pandora Papers.
"Someone dodging taxes is giving lessons to poor people for them to pay the crisis and deciding which countries should be in the list of taxes havens or not," she said.
"[Someone] directly investing money in the British Virgin Islands and then deciding that the British Virgin Islands are not on the list of EU tax havens. It's a big conflict of interest, so he should resign," she added.
Aubry also blasted Prime Minister Babiš and President Anastasiades, who are members of the European Council and therefore decide the EU's political direction – with the power of veto. Both leaders have denied any wrongdoing. Babiš described the Pandora leaks as an attempt to influence the Czech parliamentary elections, scheduled to take place this weekend.
"I think the solution is that those people are kicked out because when it comes to tax dodging, we have the solution: transparency, a credible list of tax havens and a common tax base at the EU level to make sure both multinationals and billionaires are paying their fair share of taxes," Aubry said.
The political storm unleashed by the Pandora Papers doesn't only coincide with the EU tax blacklist but also with a global effort for tax reform that is poised to coalesce later this month when world leaders meet in Italy for a G20 summit.
The draft agreement, backed by countries representing 90% of global GDP, is based on the OECD's two-pillar system which focuses on the partial re-allocation of taxing rights and the establishment of a minimum effective tax rate of 15% for the profits obtained by large multinationals. The OECD estimates the reform could generate more than $250 billion per year in additional tax revenues.