Blacklists - what do they achieve?

No doubt many of you by now will have seen that Guernsey was included on a list of 30 so-called 'non-cooperative' non-EU jurisdictions, by the European Commission (EC).

It is fair to say that there has been much shock and surprise, not only locally, but internationally at our inclusion.

The Guernsey government has already written to Pierre Moscovici, the European commissioner with responsibility for tax, requesting for us to be removed from this list as soon as possible. It remains a fact that we lead a number of EU member states on tax transparency and cooperation, and will be partners of the EU in the automatic exchange of information under the Common Reporting Standard (CRS).

Misleading conclusions

However the wider point I wish to make in this blog is how lists such as the one issued by the EC, based on some very arbitrary criteria, are unfair and can have such damaging implications when they are put together in such a hurried and hap-hazard way.

This is especially the case when they base none of their conclusions on the range of international standards in place globally, and which quite clearly now possess far more weight and detail as to whether a jurisdiction is cooperative or not.

Indeed the issuing of blacklists continues to be the realm of the large and powerful (and allows for the threatening or weakening of those smaller than them) who in many cases do not have the power to fight back or to have their voice heard. As is pointed out by many commentators, arbitrary blacklisting allows for a perception to build that there is something inherently immoral about using tax-efficient structures in smaller states.

Yes, many international finance centres have a low tax environment, but the benefits they are able to provide go much further than that in terms of level of professional expertise. If blacklists are to be fair, then they need to be based and consistently applied on objective methodology.

A view from the past

One aspect of the most recent list which is grossly unfair is that it consolidates national tax 'blacklists' as they stood six months ago. The list is simply out of date. Quoting a position which is no longer a true reflection of the situation, coupled with no deeper investigation as to why country X has blacklisted country Y, is incredibly biased and short-sighted.

What makes this worse is that the body behind this particular blacklist announced the findings to great fanfare, knowing full well that the list was no longer accurate. The Commission were informed by the Guernsey government ahead of the announcement on Wednesday 17 June, that the Island was on nine lists rather than 11, something confirmed by the Latvian and Polish governments, but was simply ignored.

Appearing on nine national blacklists puts Guernsey on the same level as jurisdictions including the Isle of Man and Gibraltar, yet we are 'named and shamed' among the world's so-called top 30 'non-cooperative' jurisdictions, while they quite rightly are not.

Babies and bath water

The OECD's top tax official, Pascal Saint-Amans, has also criticised the criteria used by the EC, describing the list as 'very unhelpful' because it lumped jurisdictions that have signed up to global transparency initiatives together with holdouts, while the criteria used was 'unfair, inefficient and subjective'.

Mr Saint-Amans also emphasised that the only agreeable assessment of countries as regards their cooperation is made by the OECD's Global Forum, and while he notes that the EC has 'incorporated the Global Forum's terms of reference into its principles of good governance in tax matters… it is not clear how this aspect is factored into either the national blacklists or the EC's list.'

Indeed the OECD's Global Forum, which includes the EU among its members, has endorsed the standards adopted by Guernsey in continuing to meet the international standards of transparency and tax information exchange, while our corporate tax regime has also been formally ratified as compliant by the EU.

In including us on the EC list, the additional factors in relation to Guernsey have been overlooked:

• Voluntarily adopting the EU Savings Directive and moving to automatic exchange of information from 2011. This means that information relating to accounts held in Guernsey by individuals resident in an EU member state is now automatically sent to their home jurisdiction each year.

• Voluntarily adhering to the principles of the Code of Conduct on Business Taxation, which has been formally endorsed by the Code Group.

• Being part of the Early Adopter Group of the CRS on automatic exchange of information, after signing the Multilateral Competent Authority Agreement in October 2014. This means that we will be able to exchange information for 2016 in 2017, unlike a full EU member state such as Austria.

• Being a party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

• At 1 May 2015, having 57 Tax Information Exchange Agreements in place (including 21 EU member states and 16 G20 members) and 13 Double Taxation Agreements in place.

Not only do the above factors dispel the notion that Guernsey should be regarded as 'non-cooperative', Commissioner Moscovici himself in May of this year welcomed our active engagement in the key initiatives involved in fighting against tax evasion, fraud and abusive tax avoidance.

He referred to us as an important partner, while our adoption of the CRS on automatic exchange of information, alongside the EU member states, was particularly positive.

Six weeks later and Guernsey is on an EC 'non-cooperative' blacklist. I think that says it all about the arbitrary nature of blacklists generally.

Dominic Wheatley is the chief executive of Guernsey Finance

He writes a regular blog about Guernsey for Private Client Adviser