U.K. Notches First Pre-Brexit Victory as EU Waters Down Tax Plan

  • France-led group seeking blacklist for 0% tax rate locales
  • EU group will study feasibility of initiative as compromise

The U.K. achieved its first major victory against other European Union nations on Tuesday since voting to leave the bloc when it prevented its offshore territories from being automatically included in a planned tax haven blacklist.

More than four months after Britain voted to leave the EU, it fought off an attempt by a France-led group of countries to denounce territories with a zero percent rate of corporation tax as potentially “non-cooperative.” That would have collared its islands like Jersey, Bermuda and the Cayman Islands, which attract hundreds of businesses because of their generous taxation regimes, and would have dealt another blow to the U.K.’s already-strained relationship with the rest of the EU.

The blacklist was one of a raft of measures the EU put forward earlier this year to tackle tax evasion and wrestle the issue back from populist groups who seized on the leak in April of documents from the Panamanian law firm Mossack Fonseca that exposed billions of dollars hidden in tax havens around the world.

The EU’s work on the issue will proceed without specific reference to zero-percent rate territories. The blacklist “will encourage those few tax jurisdictions that refuse to follow internationally agreed best practice to do the right thing,” said a British government official, who asked not to be named because talks are ongoing.

British Influence

Britain’s vote to leave has reduced its influence on the EU even though it remains a member until its formal exit, expected in 2019. But even as the U.K. becomes ever more distant from the bloc’s 27 other countries, it’s finding that it’s still affected by EU initiatives on issues ranging from tax evasion to trade policy to the sanctioning of foreign governments.

Chief Secretary to the Treasury David Gauke, attending a meeting of EU finance ministers in place of Chancellor Philip Hammond, teamed up with Ireland and Baltic nations in defeating the plan to class zero-rate jurisdictions as one of three categories the bloc will take into account when drawing up its blacklist to be published at the end of 2017, according to three EU officials with knowledge of the deliberations. With tax matters needing unanimity of all 28 EU countries, the U.K. signaled that it may have blocked the entire initiative if it didn’t get its way, said the officials, who asked not to be named because the talks are private.

The EU hasn’t completely ruled out the inclusion of zero-rate tax jurisdictions on its blacklist and is seeking to complete the roster next year. A group of tax experts representing EU nations will study the feasibility of including them in a list of criteria. The U.K. and France accepted this compromise.

“In response to the scandal of Panama papers, we have reached a decisive stage with an agreement,” French Finance Minister Michel Sapin said after the meeting. “It is now essential to apply the criteria adopted for the preparation of this list to keep the deadlines we established.”

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