Despite threats from the European Council in the wake of Brexit, the Virgin Islands has once again escaped the latest EU blacklist of non cooperative tax jurisdictions.
Instead, the EU chose to add Dominica and remove Barbados, leaving a total of 12 jurisdictions on the list as of last week, even as it faced increased criticism from within Europe and elsewhere for its blacklisting methods.
The EU requires jurisdictions to be at least “largely compliant” with international standards on transparency and exchange of tax information on request.
The body said it added Dominica because the country only received a “partially compliant” related to its tax information exchange arrangements and has not yet resolved this issue.
Barbados was added to the EU blacklist in October 2020 for the same reason, after it received a “partially compliant” rating from the Global Forum on Transparency and Exchange of Information for Tax Purposes.
However, the country was granted a supplementary review of its tax information exchange regime by the Global Forum early last year, and thus was greylisted pending the outcome of the review.
The grey list includes jurisdictions which do not yet comply with all international tax standards but have made commitments to working toward tax good governance principles, according to the EU.
The council removed Morocco, Namibia and St. Lucia from the grey list, and added Jamaica, the EU said. In addition, Australia, Jordan and the Maldives were given extended deadlines for addressing tax practices the EU deemed harmful.
Growing criticism of tax list
As in other OTs, leaders in the VI have long criticised the EU’s blacklists as arbitrary and misleading, maintaining that the territory’s financial services industry is tightly regulated in keeping with international standards.
Nevertheless, the VI was grey-listed along with other jurisdictions in 2017. At a previous review of the list in March 2018, the EU concluded that the VI, the Bahamas and Cayman needed further technical guidance from the EU and had until the end of 2019 to adapt local legislation, which resulted in the Economic Substance Act being rushed through the House of Assembly in late 2018.
Thanks to this move, the VI was whitelisted, alongside 16 other jurisdictions, in February 2020.
Back in crosshairs
However, in January of this year, the VI found itself in the EU’s crosshairs once again as European parliamentarians criticised the blacklist for leaving off international financial centres like the Cayman Islands, which, like the VI, has a zero percent corporate tax rate.
They passed a resolution demanding an extension of the tax list criteria to specifically target zero-tax jurisdictions, leading to fears that those territories, both of which passed economic-substance legislation in recent years, could be added or re-added.
The resolution claimed that the original criteria were biased because the “most harmful” jurisdictions, like Cayman and Bermuda, were de-listed after they had introduced “very minimal substance criteria and weak enforcement measures.” The VI was not mentioned in the resolution.
At the same time, the EU Council demanded the inclusion of EU member states that exhibit “tax haven characteristics.”
The EU Commission, which has the ultimate authority on the criteria, has yet to respond to the proposed change in criteria.
The EU has also faced criticism from within the Caribbean and elsewhere that the EU blacklist predominantly targets small island nations without major financial services sectors, such as Dominica.
By contrast, the EU had given Turkey a deadline to commit by the end of last year to facilitate the exchange of tax information, but Turkey failed to do so. However, council members decided to extend the deadline until May 2021 instead of blacklisting the country.
The 11 other jurisdictions that remain on the list are American Samoa, Anguilla, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, the US Virgin Islands, and Vanuatu.