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VI threatened with EU blacklist again

VI threatened with EU blacklist again

The dawn of Brexit could find the Virgin Islands on the European Union blacklist of non-cooperative tax jurisdictions even though the territory passed economic substance legislation in 2018 specifically to avoid that censure.

Last week, the European parliament passed a resolution calling for a measure that would automatically blacklist British territories like the VI, the Cayman Islands and the Channel Islands that have a zero percent corporate tax rate — and that now have a weakened voice in the EU in the wake of the United Kingdom’s split from the organisation.

The VI is not specifically mentioned in the resolution, which singled out the Cayman Islands — a UK territory that was removed from the blacklist late last year — for still having a zero percent corporate tax rate and for its inclusion in the top 10 destinations for “phantom investments” in a ranking by the International Monetary Fund.

This situation “raises questions about transparency and about a possible preferential approach to some countries,” the resolution states. “The State of Tax Justice 2020 report found that a mere two percent of global tax losses were caused by jurisdictions on the EU list;whereas the Cayman Islands were found to be the jurisdiction responsible for the most global tax losses, costing others over $70 billion a year, or 16.5 percent of the total tax losses.”

The resolution, which passed last week by a vote of 587 to 50, includes provisions calling for the automatic inclusion of countries that use a zero percent tax regime.

The inclusion of such jurisdictions on the blacklist, which was last revised in October and now includes 12 jurisdictions, would rest on a decision by the 27 member states on the EU’s Economic and Financial Affairs Council, which was set to meet this week.

History


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 the last 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. Although Cayman did pass new legislation at the end of January 2020, it appears the move came too late, with the EU stating that the territory “does not have appropriate measures in place relating to economic substance in the area of collective investment vehicles.” Thus, Cayman remained on the blacklist before being removed in October along with Oman.

The list currently includes American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, the Seychelles, Trinidad and Tobago, the US Virgin Islands and Vanuatu. However, in its resolution last week, EU noted that some of the most “harmful third jurisdictions,” including the Cayman Islands and Bermuda, had been removed from the list after “very minimal substance criteria and weak enforcement measures.”

The EU’s resolution calls on the EU Council to “include the automatic listing of third jurisdictions with a zero percent corporate tax rate or with no taxes on companies’ profits as a standalone criterion.”

Besides Brexit, the Covid-19 pandemic has put pressure on nations to tackle budget shortfalls, causing them to look to low-tax jurisdictions to recover the perceived lost revenue. The Brexit deal was based on “mutual values and geared towards common prosperity, which automatically excludes aggressive tax competition,” the resolution noted.

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