Black, grey, non-cooperative? What is the difference in how an offshore tax jurisdiction is identified in the international tax community?
Locating a business, foreign bank account, or offshore account in a tax jurisdiction with high opacity and low tax rates is a common go-to strategy for international enterprise and high asset individuals. That said, these regions or tax jurisdictions do not go unnoticed. The European Union (EU) leads the fight against global tax evasion and the funding of illicit enterprise.
The Financial Action Task Force (FATF)
Along with the EU, the Financial Action Task Force (FATF)—founded by the G7 in 1989 and now an independent inter-governmental body—sets policy and benchmarks aimed at stopping the siphoning of proceeds away from legitimate jurisdictions. By operating in opaque tax jurisdictions, users funnel income away from where it is earned and pay taxes at far lower rates—thereby reducing tax revenue where it is due.
In the past, the U.S. has worked to minimize offshore tax evasion by requiring a Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114). The FBAR is an annual report required of those with foreign financial accounts whose aggregate value exceeds $10,000 at any time during the calendar year. While the FBAR is a domestic initiative, the FATF and the EU maintain watch lists of regions and jurisdictions that do, and do not, comply with standards designed to deter tax evasion and financial crime.
The “lists”
The EU list of non-cooperative tax jurisdictions names regions that have refused to comply with good tax governance, and those that fail to meet commitments within a period of time. While regional screening can be complex, it gets down t comes down to criteria that include tax transparency, fair taxation, and steps to avoid base erosion and profit shifting (BEPS).
Note: The list is updated periodically; always refer to the current EU publication for the latest jurisdictions.
The FATF, on the other hand, maintains “black” and “grey” lists focused on anti-money-laundering and counter-terrorist-financing (AML/CFT) controls:
- Grey list: jurisdictions under increased monitoring that have committed to remedying strategic deficiencies.
- Black list: high-risk jurisdictions subject to a call for action due to serious, ongoing deficiencies.
Residency on any of these lists can lead to restricted foreign investment, economic and diplomatic limitations, and higher fees when transacting with other countries, among other measures. It is a long game for non-cooperative regions and the EU.
Navigating Offshore Reporting: Get Skilled Legal Help
Offshore reporting can be complicated. If you are concerned about your required reporting, or whether your offshore tax haven is the right one for you, the tax attorneys at Robert J. Fedor, Esq., L.L.C. can help. Contact us at 440-250-9709 or set up a consultation for reliable counsel. We offer services to clients in Northeast Ohio, Chicago, New York, and internationally.
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