By Michael Jarvis, UK Correspondent
The Cayman Islands and other British Overseas Territories risk being collateral damage from the Brexit fallout between the United Kingdom and the European Union.
The split has been riddled with acrimony despite assurances in the immediate aftermath of the signing of the ‘departure deal’ that neither side would be worse off.
Now, in what’s seen as a ‘Brexit backlash’, Cayman and other OTs, along with the UK’s Crown Dependencies, are ensnared in a new move by Members of the European Parliament (MEPs) to widen the tax blacklist.
Just last October Cayman was removed from the status-damaging list, after being placed on it in February.
The European Commission had claimed there were regulatory lapses and legislative shortcomings in Cayman which caused EU member states to lose tax revenue.
The designation was strongly refuted by the Cayman Islands Government (CIG) and others in the global sector.
The authorities here said inclusion on the list was particularly harsh and unfair as it was merely due to missing a deadline to revise legislation on Private Funds, which has since been done.
In the process, the government has also further tightened up its systems and laws governing the offshore financial sector.
Since then, however, there has been mounting pressure from some MEPs going as far as challenging the decision to remove the jurisdiction from the blacklist and lobbying to broaden the net.
In the wake of the Brexit, and with the UK now effectively a third country/non-member of the EU, MEPs are now pressing the European Parliament to broaden the base of countries they regard as tax havens.
Some MEPs had argued that “only token tweaks” were done to the jurisdiction’s tax system, calling changes “very minimal” and “weak enforcement measures”.
In a press release dated January 21st, the European Commission stated:
“All third countries need to be treated and screened fairly using the same criteria, MEPs say, stressing that the current list indicates that this is not the case."
It said MEPs had called for "the process of establishing the list to be formalised through a legally binding instrument by the end of 2021 and question whether an informal body such as the Code of Conduct Group is able or suitable to update the blacklist."
The subsequent resolution which passed with an overwhelming majority of 587 to 50 with 40 abstentions, widens the net to include countries with zero per cent tax - such as the Cayman Islands.
With the UK no longer a member of the EU, the OTs have lost a direct lobbying voice in the European Parliament and Commission.
The UK’s world-leading London financial district, The Square Mile, is also being targeted as a competitor to European states keen to grow their own financial centres; especially Germany, France and The Netherlands.
Paul Tang, the Dutch MEP who chairs the European Parliament’s Subcommittee on Tax Matters, said:
“By calling the EU list of tax havens “confusing and inefficient”, the Parliament tells it like it is. While the list can be a good tool, member states forgot something when composing it: actual tax-havens.”
“Guernsey, the Bahamas and now the Cayman Islands are only some of the well-known tax havens that member states have taken off the list. In refusing to properly address tax avoidance, national governments are failing their citizens to the tune of over €140 billion. Especially in the current context, this is unacceptable," he stated.
According to one report: “The European Parliament wants to add UK overseas territories – including the Cayman Islands, British Virgin Islands, Guernsey and Jersey – to its tax havens blacklist now that Brexit is done.”
Robert Palmer, the director of the Tax Justice UK campaign group, told the UK’s Guardian newspaper: “Post-Brexit the UK tax havens have lost their protector within the corridors of Brussels. I’d expect to see the EU ramp up pressure on places like Jersey to clean up their act.
He said, “The UK itself has been warned that if the government tries a Singapore-on-Thames approach, with a bonfire of regulations and taxes, then the EU will act swiftly.”
According to the Guardian, scrutiny of the UK’s tax arrangements is rising amid concern on the continent that Boris Johnson’s government could dramatically reshape the regime to give Britain a competitive advantage outside of the EU.