Panama, UAE on first EU list of 'non-cooperative' tax jurisdictions

The list, which includes the likes of Panama, Barbados and the UAE, was accompanied by a further list of 47 territories that have committed to taking concrete action to bring their tax systems up to standard. Another eight jurisdictions which were badly hit by this summer's hurricanes have been given until early 2018 to respond to the EU's concerns, including the British Overseas Territories of Anguilla, British Virgin Islands and Turks and Caicos Islands.

The EU's list will be updated annually, but listing does not as yet carry any formal sanctions. Tax expert Penny Simmons of Pinsent Masons, the law firm behind Out-Law.com, said, however, that with the introduction of new corporate criminal tax evasion offences, individuals or businesses based in these locations would be likely to become subject to additional scrutiny when working with UK businesses. 

New corporate criminal offences of failure to prevent the facilitation of tax evasion by employees or associated persons came into force in the UK on 30 September 2017. Two separate criminal offences applicable to both companies and partnerships were introduced on this date: the first, applicable to all businesses, wherever located, in respect of the facilitation of UK tax evasion; and the second, applicable to businesses with a UK connection in respect of the facilitation on non-UK tax evasion.

The new offences effectively make a business vicariously liable for the criminal acts of their employees and other persons 'associated' with them, even if the senior management of the business was not involved or aware of what was going on. The business will have a defence if it can prove that it had put in place reasonable prevention procedures to prevent the facilitation of tax evasion taking place, or that it was not reasonable in the circumstances to expect there to be procedures in place.

"If it was not already, the EU list makes it abundantly clear, which jurisdictions are considered to pose a high risk for tax evasion purposes," Simmons said.

"Businesses should be mindful of this list when conducting risk assessments to determine their exposure to the new corporate criminal offences and identify where additional or enhanced control procedures should be introduced to prevent one of their associated persons facilitating tax evasion. Additional scrutiny may be needed when agreeing to work with individuals and businesses based in these locations," she said.

The UK government is also planning to extend the time limit within which HM Revenue and Customs (HMRC) must investigate offshore tax non-compliance from four years, or six years where the taxpayer has been careless, to 12 years. The government will consult on the proposal, which it included in November's Budget document, in spring 2018.

The EU began to develop its idea of a list of non-cooperative tax jurisdictions in 2016, in response to the 'Panama Papers' leak of millions of documents connected with the use of offshore tax structures by prominent public figures. A similar leak, known as the 'Paradise Papers', happened last month. In response, an EU-led group of member state taxation experts began to classify and scrutinise the tax systems of 213 non-EU jurisdictions based on agreed criteria.

Jurisdictions were assessed on the basis of their tax transparency, including compliance with international standards of automatic exchange of information and information exchange on request; fair tax competition; and commitment to implement the OECD's minimum standards on base erosion and profit shifting (BEPS). The EU contacted each country that failed to meet the agreed standard to give them the opportunity to commit to further action. Only those that did not commit to further action have been listed.

The EU has listed 47 countries and territories that have committed to further action. The commitments mainly relate to improving transparency standards, improving fair taxation and applying the OECD BEPS measures, although Bermuda, the Cayman Islands, Guernsey, Jersey, Vanuatu and the Isle and Man have also committed to introducing substance requirements. Territories will be expected to make these changes in 2018, although those in developing countries without major financial centres will have until 2019 to do so.

The EU will write to the 17 non-compliant countries outlining what they need to do in order to be de-listed, and will update its list next year. The countries on the initial list of non-compliant countries are American Samoa, Bahrain, Barbados, Grenada, Guam, South Korea, Macau, The Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago and Tunisia.

Listed countries will not be able to benefit from certain EU funding streams, although direct investment that meets development and sustainability objectives will still be permitted. The Commission has also referenced the list in ongoing anti-tax avoidance legislation, and hopes to work with member states to agree on "coordinated sanctions to apply at national level against the listed jurisdictions". These could include increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions.