British dependencies that are considered tax avoidance heavens may soon be added on the EU’s tax avoidance blacklist, The Independent reports.
The first blacklist list was published by the European Commission in December 2017, without including the 17 British dependencies linked with tax avoidance via the Panama Papers scandal. The European Commission is due to decide in February on sanctions against the countries and territories on the list, largely seen as responsible for the erosion of member states tax base.
Sanctions could mean the enforcement of special protocols for monitoring individual and firm transactions with these territories. The EU could demand additional documentation and institute tougher regulation, increasing the administrative costs for companies operating from British dependencies. Under close scrutiny are the Cayman Islands, the Isle of Man, Jersey, Guernsey, Mauritius, Anguilla, Virgin Islands, the Turks, Caicos, and Bermuda.
The Cayman Islands alone host 6% of the global banking assets.
Technically, the blacklisting is decoupled from Brexit negotiations. However, it is clear that the UK cannot protect its dependencies in the context of Brexit negotiations. UK dependencies are linked to mutual funds managing over €3 trillion, of which at least a third cannot be linked to their real owners.
Some of the countries whose nationals have the biggest offshore holdings are Spain, Italy, France, Germany, Belgium, Portugal, and Greece.
Billions could be at stake, while the UK government will have a hard time championing the cause of its overseas territories at home. According to the Independent, the Turks, Caicos Islands, and Anguilla could soon be added on the black list.
The question is whether the blacklist will also feature on Brexit negotiations, where the British government will find it hard to take the political responsibility to protect the rights of its dependencies to be tax avoidance hubs.
So far, the British government has made clear that UK dependencies are independent and have their own democratically elected governments, distancing itself from any responsibility. However, the conservative Treasury Select Committee Chairwoman Nicky Morgan MP said the EU can use tax havens as leverage in ongoing negotiations.