Is the criticism against the EU for removing the Cayman Islands from its list of non-cooperative jurisdictions for tax purposes justified?

October 13, 2020

The European Council has removed the Cayman Islands from its list of non-cooperative jurisdictions for tax purposes. However, not everyone is happy about the decision.

In a new blog from Martin Macq, senior analyst at Sigma Ratings, he explains that some of the those concerns may be justified.

He notes how the FinCEN Files named the Cayman Islands as the ninth country most likely to be a financial crime hotspot in the world. “[This makes] the council’s decision a little bit questionable to some knowing one of the three main goals of the list is to tackle the ‘concealment of origins of illegally obtained money,'” Macq argues.

“Some, including the [Organized Crime and Corruption Reporting Project, have suggested that the list criteria is ‘flawed’ as the jurisdiction is ranked as the third greatest enabler of corporate tax avoidance on the Corporate Tax Haven Index.”

Macq continues that tax evasion and the concentration of untaxed wealth are not just key challenges for more prosperous countries, but even more so for emerging markets.

“African countries lose an estimated $88.6bn each year in illicit financial flows, with tax evasion and fraud being a comprehensive part of that amount and secrecy jurisdictions that encourage less transparent investment funds enabling it,” he writes, quoting the UN Economic Development in Africa Report 2020, which was released two weeks ago.

“That money, serving the interests of a very few, is a true systemic problem since it prevents developing countries from investing in solid and adequate anti-corruption policies or from spending more for the substantial improvement of the health care systems, both of those being part of the UN Sustainable Development Goals.

“Incontestably, the EU could play a leading role in the fight against tax evasion and financial secrecy through its list of non-cooperative jurisdictions for tax purposes. However, critics often argue that the perpetual exposure of EU institutions and bodies to political and economic lobbying, along with a methodology that is in question, makes the list less effective.

“It is possible that a supranational body, fully independent and non-politically driven could draw an unbiased list. However, we could expect that countries listed in such a list might never recognise the legitimacy of it.”