In an effort to address international offshore tax evasion and avoidance, the European Union (EU) created a blacklist in December 2017 that identified 17 countries and put 47 more on a “gray list” for failing to meet international standards of fairness and transparency. In January, the EU removed seven countries from the list—including Panama.
Countries on the gray list can be moved to the blacklist if they allow or promote practices that support tax avoidance.
For wealthy individuals and corporations, offshore tax havens offer an opportunity to reduce or eliminate paying taxes. Around the world, the loss of legitimate tax revenue can be crippling. In the US alone, the estimated loss to offshore tax havens is $150 billion per year.
The initial list was intended to name and shame countries known for their lack of transparency and tax structures that promote secretive offshore tax avoidance. More than just a list, membership on the EU tax haven blacklist prevents a named country from receiving funds from the EU for anything other than to assist with development projects.
The original countries on the list include:
- American Samoa
- Barbados
- Grenada
- Macau
- Marshall Islands
- Palau
- Lucia
- Samoa
- Tunisia
- South Korea
- Mongolia
- Namibia
- Panama
- Trinidad & Tobago
- Bahrain
- United Arab Emirates
- Guam
While the purpose of the blacklist is to encourage countries to bring their practices in line with accepted standards of transparency, some feel it was insufficient from the outset for failing to include countries such as Bermuda, Cayman Islands, and the British Virgin Islands.
The blacklist was developed by an EU committee called the Code of Conduct Group which is made up of tax specialists from member states of the European Commission.
After only a month, the Code of Conduct Group recommended removal of eight countries from the list, including:
- Barbados
- Grenada
- South Korea
- Macao
- Mongolia
- United Arab Emirates
- Tunisia
- Panama
The move to remove countries like Panama and Barbados was met with criticism. Noted Markus Ferber, vice-chair of the European Parliament’s economic committee, “Today’s decision is a confession of failure. Crossing Panama, one of the world’s most prolific tax havens off the blacklist, is a disastrous sign in the fight against tax avoidance.”
The move to revise the blacklist was approved by EU finance ministers based on evidence and statements received from the individual countries that are not being made public. The lack of clarity on what these countries have committed to improve fans criticism of the revision, especially in the case of Panama.
Panama has long been known and used as a haven for tax avoidance and money laundering. The so-called Panama Papers was a leak of more than 11 million documents that revealed the personal and corporate practices of clients of the Panamanian law firm Mossack Fonseca. The data pulled back the curtain on the sometimes shady practices of celebrities, royalty, and other people of wealth around the world – and how they hide their money.
It is unclear whether the EU will continue to revise the membership of its blacklist or why. If you have questions about tax havens, tax fraud, or your FBAR filing, speak with an experienced IRS tax attorney.
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