MUSINGS - On being deemed a tax haven

“Nobody agrees what a tax haven is. The term is a bit of a misnomer, for these places don't just offer an escape from tax. They offer secrecy, in various forms, combined with varying degrees of refusal to co-operate with other jurisdictions in exchanging information. The term "secrecy jurisdiction" emerged in the US in the late 1990s…”
– The Guardian (UK) 2011

Clearly peeved by the loss of substantial potential tax revenues, the Council of the European Union has chosen to punish a number of the state beneficiaries of this largesse or at least part of it. These comprise those jurisdictions, including Barbados and some of our regional neighbours, where wealthy European nationals and their more profitable corporations may deposit a significant proportion of their income and thus avoid any or a lower liability to tax on it in their native jurisdictions.

That such an initiative may be perfectly legal under various double taxation agreements concluded with some of these jurisdictions appears not to matter one whit to the Council in the present context of naming and shaming.

The mode of punishment employed on this occasion is the compilation and wide publication of a catalogue of those jurisdictions that are deemed to have failed to meet agreed “tax
governance standards” and possess “harmful preferential tax regimes”; in fine, tax havens.

To the extent that one jurisdiction has failed to perform its solemnly promised obligations to another, there should be little quarrel with condign sanctions being employed, and if indeed Barbados has been delinquent in this regard, then there may be no legitimate beef with the promisee taking action to enforce the pact made. My brief exposure to Public International Law, (happily survived), reminds me that “pacta sunt servanda” (agreements are sacred) and if there is any doubt about fulfilling a voluntary commitment then international morality and comity between nations would dictate that it ought not to be made in the first place.

There has been an official rejoinder however that Barbados has not in fact broken its word, but that it has earnestly committed to repealing the relevant offending legislation, the Fiscal Incentives Act, Cap. 71A, by next year September, a full three months before the agreed stipulated date.

Again, I am not fully persuaded that this is a sufficient answer to the complaint. If the agreement was to have the law repealed by a specified date, this would be clearly compliant with the agreed undertaking and thus undeserving of censure; however, if there was the agreed requirement of an immediate cessation of the application of the legislation, then a promise to do so at some date in the future could scarcely be viewed as conforming.

Legitimate questions may of course arise as to the source of the Council of the EU to make such a demand in the first place, but my thesis here is based purely on the fact of a potential breach of a voluntary agreement by a jurisdiction.

The irony is not lost either that the list has been deemed, in consonance with the “albino-centric” (a lexical borrowing) connotations of the English language, a “blacklist”; while those jurisdictions who are treated more leniently comprise a grey list and a white list must exist somewhere or other.

The further tarring of these jurisdictions as tax havens is perhaps the “most unkindest” cut of all. For not only is there no globally accepted meaning of this undoubtedly pejorative term, as the epigraph suggests, but the European Union also has, among its member states, a number of jurisdictions that may equally be so classified, although last Wednesday, according to a report in the EU Observer the European Parliament agreed that Malta, the Netherlands, Luxembourg and Ireland should not be considered tax havens although
this had been suggested by a Socialist group amendment as part of 211 recommendations contained in a report by a special inquiry committee into money laundering, tax avoidance and evasion, the PANA committee.

The closeness of the Parliamentary vote; according to the report in the EU Observer, “the proposal obtained 327 votes against, 327 in favour and 24 abstentions, which means it could not be adopted as there was no majority”, serves to demonstrate the vagueness of the terminology and also perhaps the emotionalism and blatant hypocrisy attached to such a demption.

One of the recommendations of the PANA Committee that is of more than passing interest is that “in offshore jurisdictions and in some EU Member States company registers and
authorities often do not require or do not share either the information necessary to identify beneficial owners, qualified shareholders, supervisory board members management board members and general managers, or balance sheet information or profit and loss statements; notes that the identification of UBOs in some countries relies only on the self-
declaration of beneficial ownership information, without any further verification. What is that passage about the mote and the beam again?

“And why beholdest thou the mote that is in thy brother's eye, but considerest not the beam that is in thine own eye? – Matthew 7:3

Season’s greetings!

浯