On 12 March, the Council of the 28-nations European Union (EU) placed 15 small territories on a list of what it calls ‘non-cooperative jurisdictions”. What the EC considers these territories to be “non-cooperative” about reveals the raw exercise of power by the strong over the weak.
In this case, the firm intention of the EU is to impose its tax policies upon other nations through strong-arming.
The language that the EU uses speaks of cooperation, but it sounds more like coercion. The targeted countries must either surrender to the EU’s demands to raise their taxes or face consequences. The EU Council has specifically directed that the EU member states “take the revised EU list of non-cooperative jurisdictions into account” in aid, trade, and financing.
In other words, those territories that do not surrender to EU tax demands will be punished.
According to the EU Council the lower levels of taxation set by over 60 countries harm their revenues. The theory of this unproven contention is that EU countries are losing tax revenues because of the “harmful”, lower tax levels of other countries. Yet, the EU Council has not conducted or published any research to prove its claim.
The EU has operated as if it is enough for its Council and Commission to make this assertion for it to be true.
The claim of ‘harmful tax competition’ goes back to the late 1990s when the Organisation for Economic Cooperation and Development, (OECD) – the world’s richest countries – blacklisted jurisdictions because they had low tax regimes.
But the EU has decided to launch out on its own because the OECD, pressured from within its own councils and sensitive then to the outcry from small countries, created the Global Forum in an effort to paint a better picture of its self-assumed authority for setting tax rules.
The Global Forum, dominated by OECD members, includes small countries whose views have to be taken into account, albeit only within the narrow and self-serving framework set by the OECD.
But even that limited area of manoeuvre for small sates appears to be unacceptable to the EU. Hence, the advent of its own effort to impose its will.
As with all such power plays in international politics, the EU has targeted the weakest and most vulnerable first. If they succeed in bending a large number of small countries to their will, in the fulness of time they can confront more economically resistant countries.
Four Caribbean Community (CARICOM) countries are among the 15 now tarnished by the absurd self-given power by the EU to victimise sovereign states.
The four countries on this list are: Barbados, Belize, Dominica and Trinidad and Tobago. Others would have been included except that their governments have promised the EU that, by the end of 2019, they will “amend or abolish harmful tax regimes”. Among the Caribbean governments that have made this promise, described as a “commitment” by the EU, are: Antigua and Barbuda, St Kitts-Nevis and St Lucia.
The Bahamas is named in a separate category of commitment. According to the EU Council, Bahamas has “committed to addressing concerns relating to economic substance in the area of collective investment funds” – whatever that means.
Obviously, it is the EU that has set the criteria for determining “economic substance” and it is the EU that will decide whether any commitment has been met.
The sadness of all this for small countries is that this steady erosion of their rights could have been nipped in the bud. In the late 1990s, a strong alliance of small states, crying out at the advantage that was being taken of them contrary to international law, caused the OECD, and the EU within it, to pause.
Had they remained resolute in their resistance, the picture may have been different now.
But, the OECD and the EU reset their strategy. They picked-off governments of small countries one by one through different forms of persuasion. The tragi-comedy of representatives of governments rushing to Paris and Brussels to sign away their state’s rights played out on a stage of the absurd.
Ministers succumbed and raved to their people that, by agreeing to surrender revenues and jobs, they had shown that their countries were not “tax havens” and they were “fully compliant with international standards” although it was the OECD and the EU not any international body that set the “standards”.
The problem with ceding rights is that it never stops. As Richard Hay of the London-based legal firm, Stikeman Elliot, points out:
“Those countries that have accepted EU dictation on design of their domestic laws to avoid being blacklisted now have a foot on the escalator – the EU will be back for more next year and in the years following”.
Caribbean countries are not alone as victims to the power play to which they are subjected. There are other countries, some within the EU who are unhappy that a noose will eventually be placed around their necks, and of course the United States of America and China.
The OECD has already named the US as only partially compliant on providing ownership and identity information for bank accounts, trusts and formation of corporations – all of which are big business and huge money earners. The US should be engaged to construct a different approach to this issue.
It is worth recalling that it was the Republican Party and the George W. Bush administration that helped to overturn the OECD juggernaut of ‘harmful tax competition’ in the late 1990s.
Caribbean jurisdictions chose to surrender to the OECD and the EU, casting it as “cooperation” in an effort to salvage their international financial services sectors. But that cooperation has been one-sided and disadvantageous. The region should politely and respectfully point out that fact to the EU.
Simultaneously, they should forge greater alliances to fight for the sovereign right of their states to set taxation as befits their own needs.
(Sir Ronald Sanders is Ambassador of Antigua and Barbuda to the United States and the Organisation of American States. He is also a Senior Fellow at the Institute of Commonwealth Studies at the University of London and at Massey College in the University of Toronto. The views expressed are entirely his own)