On September 15, 2016 the European Commission issued a press release announcing it launched work to create the first common EU list of non-cooperative tax jurisdictions. At the same time the European Commission also released a so-called Scoreboard.
In the press release the European Commission states that it is forging ahead with work to draw up a first common EU list of non-cooperative tax jurisdictions by presenting a pre-assessment ('scoreboard of indicators') of all third countries according to key indicators.
According to the press release the aim is to publish the definitive list of non-cooperative jurisdictions by the end of 2017.
According to the European Commission the aim of the Commission’s scoreboard is to help Member States to determine which countries the EU should start a dialogue with regarding tax good governance issues. It has been devised to get the ball rolling and help inform Member States’ choices when deciding which countries they should begin screening.
It is furthermore stated that all non-EU countries and tax jurisdictions in the world were analysed to determine their risk of facilitating tax avoidance. According to the European Commission this pre-assessment was based on a wide range of neutral and objective indicators, including economic data, financial activity, institutional and legal structures and basic tax good governance standards.
As a first step, the scoreboard presents factual information on every country under three neutral indicators: economic ties to the EU, financial activity and stability factors. The jurisdictions that feature strongly in these three categories are then set against risk indicators.
The European Commission also states that the pre-assessment does not represent any judgement of third countries, nor is it a preliminary EU list. According to the European Commission countries can feature high in the scoreboard's indicators for a number of reasons, even when they pose no threat to Member States' tax bases. The intention is to help Member States to narrow down their focus when deciding which countries to screen in more detail from a tax good governance perspective, which is the next step in the EU listing process. It is alos stated that the EU will work closely with the OECD during the listing process, and will take into account the OECD's assessment of jurisdictions' transparency standards.
Scoreboard
Scope of the scoreboard
In order to conduct the pre-analysis and compile the Scoreboard, the Commission collected data for all countries and jurisdictions in the world as far as available. However a differentiated approach was followed according to the status of the jurisdictions. First, the 28 member states and the territories considered to be part of a Member State such as those covered by Article 355(1) TFEU are not included in the tables drawn from the scoreboard. Second, third country jurisdictions that already have a transparency agreement with the EU feature separately in the scoreboard. Currently, this covers Switzerland, Liechtenstein, Andorra, Monaco and San Marino. And finally, the 48 least developed countries (LDC) identified by the United Nations are also featured separately, in recognition of the particular constraints they face.
After excluding the 28 Member States and associated territories referred to in Article 355(1), the 48 LDCs, and the five third country jurisdictions with a transparency agreement, 160 third country jurisdictions were assessed for potential pre-selection on the basis of the selection indicators.
Selection indicators
The selection indicators are obtained for all jurisdictions and grouped into three dimensions:
· Strength of economic ties with the EU: To see how strong the economic ties are between the third country and the EU, indicators such as trade data, affiliates controlled by EU residents and bilateral FDI flows were examined.
· Financial activity: To determine if a jurisdiction had a disproportionately high level of financial services exports, or a disconnection between their financial activity and the real economy, indicators such as total FDI, specific financial income flows and statistics on foreign affiliates were used.
· Stability factors: To see if the jurisdiction would be considered by tax avoiders as a safe place to place their money, general governance indicators such as corruption and regulatory quality were examined.
For each indicator, the jurisdiction with the highest value receives '1', the second-highest receives '2', etc. To compare indicators easily, the ratings are then reported in percentiles. For example, a country which is 12th out of e.g. 200 countries for which data is available has the percentile value 6 i.e. only 6% of all countries in the sample score higher for that indicator.
For each of the three dimensions above, a jurisdiction is flagged if its minimum percentile value comes above a minimum threshold. If a country ranks above the threshold in all three dimensions, it is considered as economically relevant for the purposes of the scoreboard and features on Table I.
Jurisdictions that display missing values, due to lack of data, feature in a separate part of the scoreboard (Table IV).
In total the scoreboard contains the following 5 tables:
I. Third Country Jurisdictions that rank high in all selection indicators
II. Third Country Jurisdictions with EU Tax Transparency agreement
III. Third Country Jurisdictions that do not rank high in at least one of the selection indicators
IV. Third Country Jurisdictions with no economic data
V. Third Country Jurisdictions that are listed by the UN as Least Developed Countries
Risk indicators
According to the European Commission, once the selection indicators identified the jurisdictions which are most economically relevant, the Commission did a basic assessment of the potential risk level of these jurisdictions facilitating tax avoidance.
The risk indicators used were:
(1) Transparency and exchange of information: The jurisdictions' status with regard to the international transparency standards i.e. exchange of information on request and automatic exchange of information.
(2) The existence of preferential tax regimes: The existence of potential preferential regimes, identified by the Commission on the basis of publicly available information (IBDF, national websites etc.).
(3) No corporate income tax or a zero corporate tax rate: The existence of a tax system with no corporate income tax or a zero corporate tax rate.
These three risk indicators, which reflect the situation in July 2016, were then applied to the most relevant jurisdictions (Table I), identified by the selection indicators, as well as to the five jurisdictions with transparency agreements with the EU (Table II).
On the scoreboard it is emphasized that it is important to point out that the risk indicators do not pre-empt the in-depth analysis of jurisdictions' tax systems, which will take place in the screening stage (Step 2). The risk indicators are only intended to provide Member States with as much information as possible to decide on the jurisdictions that they wish to screen.
Next Steps
The pre-assessment was presented to Member State experts in the Council Code of Conduct Group on Business Taxation on September 14, 2016. The European Commission stats that based on the results, the Code of Conduct Group will decide on the relevant jurisdictions to screen, which should be endorsed by finance ministers before the end of the year. It is furthermore stated that the screening of the selected countries should begin next January, with a view to having a first EU list of non-cooperative tax jurisdictions before the end of 2017.
Next to the Scoreboard the European Commission also published Questions and Answers on the common EU list of non-cooperative tax jurisdictions.
Click here to be forwarded to a document containing the scoreboard as available on the website of the European Commission, which will open in a new window.
Click here to be forwarded to the press release as issued by the European Commission in this repect.
Click here to be forwarded to the Questions and Answers on the common EU list of non-cooperative tax jurisdictions as published by the European Commission on September 15, 2016.
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