OP-ED: Why Europe is Ill-Suited For The Business of Blacklisting So-Called ‘Non-Cooperative’ Jurisdictions.


I AM  NOT  A FAN OF THE  USE  OF UNILATERAL MEASURES IN international  diplomacy;  including the use of tax haven or other types of blacklists related  to  compliance  with global  norms   on   transparency  and information   exchange.  Although   we often think of this kind of state action in the context of armed conflict where there are clear protocols on the circumstances where   such   interventions   may   be justified and managed with the United Nations structure.

Following the work on harmful taxation in the late 1990s, the threat of war is not the only context for the use of such ‘defensive measures’. In  fact,  one  of  the  basic  principles of  good  global relations in  the  post- World War II era of sovereign relations is the  preference for  collective action for  security. This pillar of  diplomacy precludes  unilateral   state   action   in times  of  misaligned opinions  among states which, if left to a consideration of domestic concerns, would tend towards states acting, not in consort, but on their own behalf and in their own interest.

There is no international organisation that manages international tax matters on   a   truly   multilateral  basis,  but this  does  not  mean  that  in  matters of transparency and exchange of information for tax purposes states should use this to justify unilateral action to compel compliance via regulations that have been crafted and applied by a group that, although almost universal in membership, nonetheless does not meet the definition of a Bretton Woods institution.

Whilst by no means perfect, it must be said that the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) which brings together 135 countries to craft, implement, and monitor  international  tax law, policy and practice, is the only organisation that  comes close. Moreover, with  its 15  observers representing  a  number of tax and  non-tax global entities, it leaves no doubt that in matters of the international aspects of tax the Global Forum is the authoritative voice in these matters.

It  is hoped  that  the  Global Forum will evolve into a more readily identifiable international body with the full suite of checks and balances central to the orderly conduct of state tax relations, however, it  would be naïve  to think that such a transaction would find acceptance among those members who are able to exert  disproportionate influence on  the  work of the  Global Forum by virtue of their membership in ‘closed clubs’ like the G20, G7 and the  OECD.  This means that  certain members of the Global Forum are able to  influence the  initial development; and   in   some   case  the   acceptance of, international tax norms and the implementation timetables.

Of course if the Global Forum did become a  proper  international  body, it would find that  its acronym if not its name is already in use by the World Trade   Organisation.   In   considering the  merits  and  de-merits of  another WTO  but this time dealing with tax, one cannot ignore the decades-long journey of international trade to its eventual permanent home after 13 years   of   multilateral   negotiations. That said, the  lengthy process which attends the creation and acceptance of diplomatic ‘infrastructure’  to  manage the  work of multilateral dialogue on matters of central importance to  the global economy does not  justify the perfunctory  dismissal  of  the   same.

This is especially dangerous when the lack thereof leads to the use of other machinery at the domestic and regional levels which purport  to  fill the  void created by the absence of a global body and  an  associated dispute  settlement mechanism.

Following the public disclosure of the theft of the 1.7m items of confidential client information, curiously described as the ‘Panama Papers’ the G20 announced  that  it  publish a blacklist of countries (presumably not including any of its members) before the end of the 2016 G20  presidency which is held by China. While no criteria were identified nor has any been disclosed at the time of writing this piece, the prevailing view is that it will be informed by the annual OECD reports to the G20 on progress made by members of the Global Forum based on the implementation timelines decided by the OECD and adopted by the Global Forum. This is not the G20 that has threatened to blacklist countries in the past. This decision has be informed by the  report  of the  OECD  coming out  of the  annual  plenary session of the  Global  Forum  which is unlikely to take place before the G20  releases its  list.

It  would  seem quite  odd  to decide a list before this year’s reports are made available to  the  G20.  That said, it is possible that the G20 could look  to  the  latest submission to  the G20 by the OECD  on Global Forum members, which technically is not one which requested any particular action on  the  part  of the  G20.  Indeed, the latest ‘actionable’ document publicly available was presented to the G20 by the OECD in November 2015 and that was on  the  Base Erosion and  Profits Shifting programme.

Not  to  be  labelled as  a  ‘me  too’ move because, to be fair, the European Commission     (EC)     did     indicate, even  before  the  G20  decision,  that this  year  they  would  be  publishing the  revised results of their  revamped list of  countries who  feature on  the blacklists of European Union members. For convenience sake, despite the methodology employed by the EC, these results are characterised as a European  Union  blacklist. Moreover, in line with the European Union’s view of international tax reform as OECD- plus, the EC is also committed to setting out a list of defensive measures to  be  applied  to  blacklisted nations.

That takes the EC blacklisting beyond the ambit of the G20  exercise which tends towards penalties on transactions originating or destined to a blacklisted jurisdiction though the application of an obviously punitive withholding tax. These two developments sit alongside a number of national blacklists like the one  maintained  by Argentina, which was the  subject of  a  recently WTO appellate body ruling. Since both Panama and Argentina are members of the WTO, they are both subject to the disciplines and the dispute settlements mechanism of the organisation which deal with complaints of trade distorting state measures. Panama complained that    the    Argentine   blacklist   was just such a measure as it  offended a fundamental    rule    of   international trade law that WTO  members should treat ‘like’ goods in the same manner.

Since I do not intend on this occasion to  examine the case nor  the decision made, suffice to say that the appellate panel  was equivocal on  whether  the Argentine blacklist was consistent with WTO law. Moreover, as these decisions are not binding on other dispute settlement panels even with identical fact patterns, it seems likely that other blacklisted Global Forum members may access international trade law to find redress when they find themselves blacklisted under the domestic law of a Global Forum member.

It    is   my   view   that    it    would be inappropriate and decidedly inconvenient for trade law to determine matters  of  international  tax  and  for this reason as well as the fact that the appellate body  stated  that  they  were ‘not  properly briefed’  (my paraphrase) it  seemed prudent  that  no  guidance was provided. I  believe that  this was the correct approach. It is this fact pattern  that  has triggered my review of  my  own  thinking   on   blacklists. If   it   is   understood   and   accepted, though the actual practice and a seemingly entrenched understanding that blacklisting countries is the most efficient  and  effective ‘stick’   in  the ‘carrot and stick’ methodology of international tax compliance then it is logical to me that the only legitimate ‘home’ for such lists must be the Global Forum.

  • The lack of status as a  full- fledged UN-modelled international organisation does not make the Global Forum any less equipped to both define the  parameters of the  listing exercise and perhaps more importantly, provide a  platform  for  all countries to  work together and within the previously accepted methodologies to populate and progressively graduate ‘listees’ from one  or  more  categories that  may be included in such a list.

My  revised view on  ‘blacklists’  is informed by the fact that it seems certain that this type of unilateral state action is entrenched in the exercise of international tax diplomacy. If that is to be the case, then I would have to endorse the Global Forum as the legitimate author of such a list which would place obligations on the jurisdictions lists to work towards exiting the  list and  an obligation on the part of those Global Forum members who are not listed not to take unilateral action at the domestic level to  undermine  the  exclusivity of the Global Forum in these matters.

( Published in the IFC 2016 Report , titled ( Tax Blacklists: Time for a Rethink)

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