The days in paradise may be numbered for those seeking refuge from heavy tax burdens in remote islands. Finance ministers representing the world’s largest market vowed to take action following the leak of records exposing prominent members of the global business A-list.
“I am fully determined to reinforce the means to fight tax evasion,” French Finance Minister Bruno Le Maire said before a meeting with his European Union counterparts in Brussels on Tuesday. “States have to stick to their commitments. If they don’t stick to their commitments, we have to put sanctions,” he said, adding that France will table a proposal to punish tax havens, which includes cutting international funding.
A new set of data taken from an offshore law firm exposed again this week the hidden wealth of individuals and shows how corporations, hedge funds and investors may have skirted taxes. A year after the Panama Papers, this new massive leak of confidential information from the Bermuda law firm Appleby Group Services Ltd. has shone another light on the use of offshore accounts.
“We also hope that this agreement on the blacklist will be possible by the end of the year,” European Commission Vice President Valdis Dombrovskis said. “It is also important to have countermeasures for jurisdictions which end up in a blacklist.”
The EU has been working on finalizing a so-called blacklist of uncooperative tax jurisdictions by the end of the year. This list of tax havens was discussed at a meeting of the bloc’s finance ministers on Tuesday. While the discussion was originally planned for the ministers’ December meeting, the matter was put on the agenda following the Paradise Papers revelations.
“A blacklist is always a difficult exercise,” Luxembourg’s Finance Minister Pierre Gramegna said on his way into the meeting on Tuesday. “It’s an EU initiative that we have to agree together and we stand behind this idea.”
A common list will set out all the jurisdictions the bloc’s countries essentially deem to be tax havens. The EU hopes the list will work primarily through a reputational incentive, forcing countries to become cooperative in order to avoid being “named and shamed.” However, if the countries remain persistently uncooperative, the bloc hopes to have some credible sanctions too.
The Paradise Papers put “renewed emphasis on the work which the European Commission is doing to fight tax avoidance,” Dombrovskis said. The bloc’s anti-trust chief, Margrethe Vestager, agreed, saying in a tweet that the leaks enable “the work against tax avoidance, for transparency.”
Apple Inc., which has clashed with the European Commission over taxes, was ensnared in the leak. The BBC reported that the iPhone maker moved its unit holding most of its large untaxed offshore cash reserve to the Channel Island of Jersey after a 2013 “crackdown on its controversial Irish tax practices.” In response to the report, Apple said it “pays every dollar it owes.”
The EU has stepped up its efforts in recent years to tackle tax avoidance and evasion by multinational companies and wealthy individuals. While politically contentious, the blacklist has received fresh impetus following successive revelations which shed light on such practices and drew the public’s outrage.
“If one tax oasis closes, another one opens,” said Austrian Finance Minister Hans Joerg Schelling. “We should toughen measures and those who don’t participate in OECD rules—be it on information exchange or other measures” should automatically be put on a blacklist so that everyone becomes willing to close these tax loopholes, he said.
—With assistance from Richard Bravo, Radoslav Tomek and Rainer Buergin