Some major European nations are tax havens too and not blacklisted.

Introduction                       

The European Union (EU) has blacklisted several countries including the Turks and Caicos, Bahamas, and Anguilla. However, they have not blacklisted some of the major tax havens in the European nations such as Ireland, Holland and Luxembourg. Isn’t his hypocrisy?

Despite the hypocrisy and lack of credibility by the EU, being blacklisted can signal a high risk for TCI companies and trust companies.

What is the EU blacklist?

The EU blacklist represents a list of uncooperative tax jurisdictions.  In this case, uncooperative means jurisdictions that failed to comply with and implement certain requirements by the European Union.

The countries that are on the EU blacklist is as follows: American Samoa, Anguilla, Bahamas, BVI, Costa Rica, Fiji, Guam, Marshall Islands, Palau, Panama, Russia, Samoa, Trinidad & Tobago, Turks and Caicos, US Virgin Islands and Vanuatu.

Why was TCI added to blacklist?

The Turks and Caicos Islands were added to the EU blacklist for the first time in October 2022. However, this resulted from the complex EU requirements to enact legislation and regulation in connection with a concept called Economic Substance.  The concept of economic substance is to prevent tax avoidance, and therefore the Turks and Caicos Islands Government was obliged by the British Government to report, record, and ensure that companies had substantial purposes in TCI other than taxation purposes.

The Turks and Caicos Islands did pass the appropriate economic substance legislation. However, according to the Deputy Premier E Jay Saunders, the Turks and Caicos Islands were deficient in substance returns, compliance actions, statistical data, and exchanges of information.

In summary, TCI was added to the blacklist due to the alleged failure to undertake a cumbersome bureaucratic process. With that said, we should dispel any rumours of suspected wrongdoing or corruption.

What are the consequences?

One obvious consequence is that European Union which consists of 27 members may not want to have any dealings with companies registered in the Turks and Caicos or they may impose a tax. For instance, France has already announced his intentions that starting May, a withholding tax will be implemented on any gains or income earned by a TCI company that is a direct investor in a French headquarter company.

Another possible consequence is that correspondent banks in the US and UK may also place Turks and Caicos on their blacklist.

How do we get off the list?

I think the list is reviewed by the EU at least twice a year and so it is possible for the Turks and Caicos to get off the list by the next review. The main thing TCI must do is to correct the deficiencies described above.

The Government of the Turks and Caicos Islands has recruited a consultant to ensure that the deficiencies are addressed. My understanding is that some of the deficiencies have already been corrected. However, to get off the list, all the deficiencies must be completed.

Conclusion

While the Turks and Caicos is currently not a major player in the Financial Services Industry, any blacklisting can harm the reputation of the country. Furthermore, with the establishment of TCI Finance, the Turks and Caicos is expected to become a mover and shaker in the Financial Services Industry rather than depending solely on tourism.

As I started off this article by stating the hypocrisy and lack of credibility, I will end this article with the same message using some quotes from Chiara Putaturo, a leading Oxfam EU tax expert.

“How can anyone give this list any credibility? Bermuda is one of the world’s worst tax havens with its zero corporate tax rate. Yet the EU took it off the list after it made a few woolly promises to reform.” Chiara Putaturo said.

“To add insult to injury, major European tax havens like Luxemborg are not on the list because all EU countries receive an automatic free pass,” Putaturo added.

Putaturo further stated that “If the blacklist is to retain any credibility, the EU must all include all countries that operate as tax havens – including countries with zero corporate tax rates and countries where corporate investments outstrip the level of real economic activity they engage in. It is essential that the European Commission and the Council fill these gaps – this should be top of the agenda when it reviews the definition of harmful tax regimes next year.”