In mid-January, the EU’s parliament voted in favour of changing the regulations of what constitutes a ‘blacklisted’ country. The vote proposed to extend blacklist criteria to include jurisdictions with a 0% tax rate.
As a result, a total of 17 new countries including Cayman, Guernsey, Jersey and the Isle of Man would potentially be blacklisted by the EU.
Is Brexit to blame?
The UK has fiercely protected the Crown Dependencies and Overseas British Territories in the past. Pre-Brexit, inclusion in the EU bloc meant that the UK had a louder voice on such issues and successfully petitioned the EU to take a softer stance on this issue.
Clearly, the UK no longer has the influence it had within the EU and you only have to look at the current AstraZeneca feud to see how differently the EU will treat the UK in a post-Brexit world. The sands have shifted and the UK, including the Crown Dependencies and the Overseas Territories, can expect a much colder approach going forwards.
The future of Financial Services in the UK
We know the UK is giving very strong consideration to a ‘Singaporean-style’ approach in the future and it remains to be seen how the EU will react to any regulatory and legislative changes announced on the back of this ambitious project. If there is to be any hint of the EU being put at a competitive disadvantage, which surely must be the case if it progresses, we can expect to see robust action from the EU and, who knows, we potentially also see the UK being blacklisted too?
Any expansion of the blacklist must be made by the EU’s Economic and Financial Affairs Council following an investigation and recommendation by the EU’s Code of Conduct Group.
‘This is a most interesting development given the admirable history of offshore’s continual compliance with EU demands. An ill-informed approach to blacklisting can be terribly damaging for legitimate business (including within the EU) given the connotations of tax avoidance that necessarily walk hand in hand with such labelling. Jersey, Guernsey, the Isle of Man and Cayman are highly regulated, reputable jurisdictions used by clients who are entirely tax compliant and proudly so. The compliance regimes in these jurisdictions are, at the very least, comparable, if not better than many countries globally including within the EU. Taken in the round, one has to question whether this is a genuine effort to tackle tax avoidance or a politically motivated power play. Either way, we will see offshore rise to the challenge and adapt as required as they have in the past’ says Richard Wakeham, Head of Commercial and Solutions, UK and Offshore.