Dickinson sees EU engagement as key, as political threat grows
European Union politicians are calling for any jurisdiction with a zero per cent tax rate on corporate profits – including Bermuda – to be included on the bloc’s tax blacklist.
But Curtis Dickinson says the body that manages the list has given no indication of changes in the listing criteria. The finance minister also stressed his intention to continue engaging with EU decision-makers.
Mr Dickinson was speaking after Members of the European Parliament passed a resolution on January 21 demanding tougher actions against “tax havens”.
The resolution, passed in a 587-50 vote, also claimed that Bermuda was taken off the European Union’s tax blacklist only on the basis of an economic substance regime based on “minimal” criteria and “weak enforcement measures”.
On the blacklist now are American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, the Seychelles, Trinidad and Tobago, the US Virgin Islands and Vanuatu.
These countries “cover less than 2 per cent of worldwide tax revenue losses, making the list confusing and ineffective”, MEPs said, adding that profit-shifting to tax havens cost EU member states an estimated 20 per cent of their corporate tax revenue every year.
Britain’s departure from the EU has left the British Overseas Territories without an influential voice in Brussels and more politically exposed to potentially damaging actions taken by the 27-state bloc.
The European Council updates the list of jurisdictions deemed to be noncooperative on tax matters twice a year – the next update is due this month.
Asked about the threat of an expansion of the blacklist, Mr Dickinson said: “The European Parliament has expressed its own non-binding position on the future of the EU listing criteria.
“Accordingly, in the Council conclusions of last November, the EU member states – which are responsible for the EU listing process and criteria – reiterated their support to the successful work in relation to the EU list of noncooperative jurisdictions for tax purposes.
“The EU Council has not indicated any action related to the listing criteria and stressed the importance of the fair treatment with respect to non-EU countries and jurisdictions in the EU listing exercise.
“This EU Council position was further reaffirmed by the EU Council Presidency last week at the European Parliament debate on Parliament’s proposals in relation to the EU listing process and criteria.
“We are continuing to monitor the position of various EU Institutions and bodies, and, more importantly, to engage with the EU Commission and EU Council.”
The European Parliament cannot force a change to blacklist criteria. As Raluca Enache, director, of KPMG’s EU Tax Centre, said in guidance notes on the matter: “Resolutions adopted by the European Parliament are not binding on the Council and European Commission, therefore the adoption of any changes requested or suggested by Parliament in its resolution on reforming the EU list of noncooperative jurisdictions is at the discretion of the two institutions.
“It therefore remains to be seen which of the reforms asked by Parliament will be taken on the Council’s and the Commission’s agendas.”
During the January 20 debate on the MEPs’ resolution, Ana Paula Zacarias, president-in-office of the European Council, said the Council “reiterated the importance of supporting the principles of good tax governance through the continuation of the successful work undertaken so far in the context of the Code of Conduct Group, including the EU list of noncooperative jurisdictions for tax purposes, which should be further pursued and enhanced where necessary”.
She added that the Council “stressed the importance of fair treatment within the EU with respect to third countries and jurisdictions, while maintaining a continuous dialogue with third countries as well as with the OECD [Organisation for Economic Cooperation and Development]”.
Many MEPs spoke in favour of a tougher blacklist. One was Marek Belka, former Prime Minister of Poland, who said that 80 per cent of EU citizens wanted tougher rules on tax avoidance.
“It is not proven that blacklists hurt tax havens,” Mr Balek said. “Paradoxically, they might even serve as guiding maps for wrongdoers seeking secrecy, lack of transparency and low tax rates. We need sanctions now!”
Mr Balek added: “When one thinks of tax havens, we imagine a luxurious club of tropical islands. In this Club Tropicana drinks might be free, but it is our citizens who pay for them. Let’s make that club bear a fair share!”
Paul Tang, a Dutch MEP, suggested that the resolution required the EU to “look in the mirror”, as members sates were not blameless. “The Netherlands …, together with Luxembourg, Ireland, Hungary and other EU States are responsible for one third of global tax avoidance,” he said.
Paragraph 15 of the MEPs’ resolution states that “some of the most harmful third jurisdictions, including the Cayman Islands and Bermuda, were removed from the list upon their introduction of very minimal substance criteria and weak enforcement measures”.
Bermuda introduced the Economic Substance Act at the end of 2018 to address EU concerns about tax avoidance by multinational firms.
EU finance ministers put Bermuda on the tax blacklist in March 2019, because they were not satisfied with the island’s substance rules. David Burt, the Premier, put this down to a “drafting error”.
The problem was rectified and the island was removed two months later. In September, it was moved from the EU’s grey list to the white list.
The island’s economic substance rules require that international companies within the Act’s scope have “adequate” physical presence, in terms of operations based here, employees and local spending, or face fines and potentially be struck off Bermuda’s company register.
Mr Dickinson said that technical experts at the EU Commission and the EU Council’s Code of Conduct Group had carried out a thorough analysis of the Bermuda substance framework.
“On that basis, the EU Council has concluded that Bermuda had satisfied the EU Council’s economic substance criteria and rated Bermuda as a fully co-operative jurisdiction since February 18, 2020,” Mr Dickinson said.
“Bermuda has ongoing exchanges with the Commission and the COCG in the implementation and application of our substance regime and has successfully addressed all suggestions made by the EU in those exchanges. To date the European Parliament has not been involved in the technical assessment of Bermuda’s economic substance regime.”
Mr Dickinson added that the island had received very good ratings from OECD assessments of tax information exchange agreements and automatic exchange of information regimes. The OECD has also rated the island’s economic substance regime as “not harmful”.
Mr Dickinson said: “Bermuda continuously engages with the Commission and the COCG, and has constructive and cordial relationships with the relevant officials of those bodies.
“As Minister of Finance I have continued the outreach started by my predecessors by visiting Europe several times to have direct discussions with the Commission, the COCG and various EU member state officials. I intend to maintain this engagement – either remotely, given the Covid-19 pandemic, or physically as soon as that becomes practicable.”