Guest article by Alan Rhode
Now we know: there are two sets of rules the European Union uses when drawing up its tax haven blacklist. One set is for the 93 countries it has examined to determine if they have applied transparency and corporate tax rules to fight letterbox companies and profit shifting. And then there are the rules for the United States.
Or more precisely: the rule exemptions. For the past year, the European Commission and the EU member states have be doing a delicate dance trying to determine how they were going to dodge a confrontation with U.S. President Donald Trump over his administration’s failure to adopt the OECD Common Reporting Standard. Known as the CRS, it requires all countries to exchange the bank data of foreign residents with the country of their citizenship. Backed by the G-20, the CRS requires countries across the globe to exchange bank data of non-native residents with their country of citizenship. And many have. In fact, OECD Secretary General Angel Gurria now jokes that the Paris-based institution is now one of the world’s leading treasuries as countries, primarily in Europe, have recouped more than $50 billion because individuals and companies have been repatriating money previously hidden in tax haven.
But in the case of the United States, the Trump Administration along with the majority of Republicans in the U.S. Congress want nothing to do with the CRS. The Obama Administration had proposed legislation to implement the CRS but it made little progress in the Republican-controlled Congress.
In 2017, when the EU launched its tax haven blacklist it agreed on various sets of criteria. The first had to do with transparency and the transfer of bank data as required by the CRS. The EU had set a deadline of June 2019 where all of the 93 countries screened in the tax haven blacklist process had to meet all of the transparency criteria. For two years European Tax Commissioner Pierre Moscovici insisted in one hearing after another that all countries will be held to same transparency standards, including the U.S.
However EU member states, meeting in the secretive Code of Conduct Group for Business Taxation and which has the ultimate decision on the tax haven list, backed off. Moreover in October it decided that the U.S. Foreign Account Transfer Compliance Act, which requires EU member states to transfer bank data of U.S. citizens in the EU to the U.S., was sufficient. That decision came despite Moscovici and the European Parliament insisting FATCA does not meet the transparency criteria because it does not require U.S. Banks to transfer data of EU citizens resident in the U.S. In other words it is a one-way street with data flowing to the U.S.
After the decision was taken in October, Moscovici issued hollow, indirect criticism highlighting the lack of reciprocity of FATCA. But ultimately he backed off. Perhaps the fact that Moscovici’s term as European Taxation Commission is finishing this month had something to do with that. Some members of the European Parliament expressed their outrage. European Green Party member Sven Giegold called for the U.S. to be put on the EU gray list, which is made up of countries that have committed to reform but have not yet done so.
Giegold and others emphasized that because the U.S. does not apply the CRS the country has become the world’s new go-to tax haven. Combined with weak beneficial company ownership laws in some U.S. states such as Delaware European individuals and companies are setting up shell companies in the U.S. knowing their money will remain hidden from European tax authorities.
EU member states are currently working on new beneficial ownership criteria in the Code of Conduct Group that are supposed to be applied in the ongoing listing screening process. Supposedly the criteria will be finished by the end of 2019 and applied in 2020 when new EU anti-money laundering legislation, which requires EU member states to post public beneficial ownership registries for companies and commercial trusts, takes effect. Will this new EU tax haven transparency criteria be applied to the U.S.?
If the EU is going to avoid being accused of blatant hypocrisy by using its clout to crack down against small countries but then turn a blind eye to the U.S., it will have to.