EU Split on Using Company Transparency Rules to Blacklist Tax Havens

(Bloomberg BNA) -- European Union member nations are divided over a plan to add company beneficial ownership transparency standards to the criteria used to draw up the bloc’s tax haven blacklist.

The plan would require foreign jurisdictions to comply with OECD beneficial ownership rules, which require the disclosure of individuals with a share of 25 percent or more in a company, or risk being blacklisted. The blacklist is part of the bloc’s efforts to flag countries that don’t follow anti-tax avoidance standards.

The U.K. is leading a group of EU countries blocking the plan, according to a document seen by Bloomberg Tax. The document was prepared by presidency holder Austria in advance of a July 10 meeting.

“There is opposition to the plan by a number of member states who insist for various reasons that we will be holding foreign countries or jurisdictions to a higher standard than those in the EU,” said an EU diplomat, who spoke on the condition of anonymity to Bloomberg Tax.

The issue of beneficial ownership is particularly relevant for the U.S., a country which the EU has threatened to blacklist. Some EU officials, especially in the European Parliament as well as tax advocacy groups, insist the U.S. has become one of the world’s largest tax havens because certain states lack transparency rules, and because the U.S. hasn’t adopted the OECD Common Reporting Standard.


Some EU member nations believe the requirement to meet certain minimum OECD ratings “may not be as relevant,” according to the document. Others, led by the U.K., insist the new criteria lacks “flexibility” especially for developing countries, and the terms “go broader” than beneficial ownership considerations,” the document said.

Other screening issues facing the EU include sanctions that could apply to blacklisted jurisdictions, and a new criterion relating to whether a foreign country or jurisdiction complies with base erosion and profit shifting reforms from the OECD.

“The BEPS criteria is not divisive but the sanctions list is,” said a separate EU diplomat, who spoke on the condition of anonymity.” The Austrian presidency is hoping to get an agreement on all the issues in the coming months and have EU finance ministers sign off on them in November, the diplomat said.

Standards Negotiation

The beneficial ownership negotiations are taking place in the EU Code of Conduct Group for Business Taxation—a group of EU officials, which last met behind closed doors on July 24.

The standards are also part of the OECD’s Exchange of Information on Request program. In March, the European Commission proposed that the EU use three of the program’s standards to “guarantee that the information is effectively available,” and require that jurisdictions be graded as “largely compliant.”

The three standards are:

Jurisdictions would need to ensure information identifying legal owners and beneficial owners is available to tax authorities;

Jurisdictions would need to make banking information available to all account holders;

And competent authorities would need to have the power to obtain and provide information that is the subject of an information exchange request.

The OECD is currently due to conclude by 2020 a compliance review of the Exchange of Information on Request program.

The EU is aiming to start using the standard as of 2021, though “the availability of ratings for a number of jurisdictions might nevertheless not be in line with the proposed timeline,” according to the document.

Zero Corporate Tax Rate

Beneficial ownership rules are also crucial as they concern countries or jurisdictions with a corporate tax rate of zero percent.

“In places such as Bermuda, Cayman Islands, the Channel Islands and others where there are zero corporate tax rates there are hundreds of thousands of shell companies where the owners remain hidden,” said an EU diplomat. “This is a way to get access to those hidden owners.”

Currently there are seven countries on the EU tax haven blacklist. They include: Namibia, Palau, American Samoa, the U.S. Virgin Islands, Trinidad and Tobago, and Guam.