The UK’s financial services industry “could face heavy penalties after Brexit unless the UK turns back on its aggressive tax haven policies”, according to the UK-based Tax Justice Network, an advocacy group.
The TJN said it was basing its warning on research it carried out ahead of the UK’s plans to leave the European Union in 2019.
Although the TJN said it found five other EU countries also potentially likely to end up on the EU blacklist, according to its research – which it said made use of the the EU’s own criteria for classifying jurisdictions as tax havens – it noted that the UK was particularly vulnerable because the EU “has stated that the list will only apply to non-EU member states”, and with the UK set to leave the bloc in 2019, “this could mean sanctions being applied to the UK, unless it changes course and ends policies which make [it] a tax haven”.
In a statement accompanying its findings, the TJN said it carried out its research ahead of the EU’s announced plans to publish a new, definitive “blacklist” of tax havens on 5 December.
It said the study was overseen for it by Wouter Lips, a PhD researcher at the Ghent Institute For International Studies at Ghent University.
As reported, the EU said earlier this month that it planned to bring forward publication of its long-planned tax haven blacklist in response to the publication, on 5 November, of the so-called Paradise Papers by the International Consortium of Investigative Journalists.
The planned blacklist is being watched with concern by many offshore jurisdictions, which could see their financial services industry suffer if sanctions were imposed by the EU, alongside the negative publicity being on such a blacklist would generate.
The other five EU countries that the Tax Justice Network said its research showed “would find themselves on [the EU blacklist] if the criteria were applied equally to them”, in addition to the UK, were Ireland, The Netherlands, Cyprus, Luxembourg and Malta.
Among the practices the UK permits, and which the TJN said that the EU would consider to make it a candidate for its blacklist, were its “controlled foreign companies rules”, which it says permit UK-based multinationals “to horde foreign profits in zero-tax countries”. (These rules, it notes, are currently the subject of a “state aid” investigation by the European Commission.)
The study also finds, the TJN says, that “up to 60 jurisdictions could be listed under the EU’s blacklist procedure, if the criteria are strictly applied”, but that it believes “intense lobbying by the tax avoidance industry and some countries” may see far fewer countries than that actually blacklisted.
The organisation refers to a Financial Times report earlier this month, which it says “demonstrated that 53 jurisdictions had been sent letters by the EU warning them about [their] possible inclusion” on the new blacklist.
“Before the letters were sent, the UK lobbied to remove a number of its own Overseas Territories and Crown Dependencies from the list of recipients, such as Bermuda and the Isle of Man,” the TJN quotes the FT report as noting.