The Pacific island of Palau has been removed from the European Union’s blacklist of tax havens. The decision means only six other jurisdictions remain on the blacklist.
Namibia, Samoa, Trinidad and Tobago and the three US territories of American Samoa, Guam and the US Virgin Islands are now the only jurisdictions where tax rules and practices were deemed not in line with EU standards.
Palau had been included on the blacklist in March. However, after it committed to changes, EU ministers agreed to move it from the blacklist to a so-called greylist of jurisdictions with low tax transparency standards but aiming to become less opaque, an EU document shows.
In the EU’s assessment, a range of factors are taken into account including tax transparency, fair taxation and a commitment to combat base erosion and profit shifting (BEPS).
Any jurisdiction judged by Brussels to be deficient within one or more of these areas is placed on either a blacklist or an intermediary greylist. While just 6 jurisdictions remain on the EU blacklist, 62 countries appear on the ‘greylist’, including the Cayman Islands.
The EU classifies the greylist as being for those countries where there is one area where concerns remain but a commitment to address it has clearly been set out.
To avoid being blacklisted and to get off the greylist, jurisdictions have to demonstrate that companies based in the country have real economic activity, like staffed offices or the presence of key decision-makers.
The EU blacklist was set up last December after revelations of widespread tax avoidance schemes used by corporations and wealthy individuals to lower their tax bills. It originally included 17 jurisdictions.
Fair tax groups and EU lawmakers have criticised the rapid shrinking of the list and the fact that renowned tax avoidance countries are not listed.
Blacklisted jurisdictions could face reputational damage and stricter controls on their financial transactions with the EU, although no sanctions have been agreed by member states yet.