EU: Naming and Shaming

The EU; naming and shaming


A Note from Caroline


The EU earlier this month revised its blacklist of non-co-operative countries, and increased the number from 16 to 23. Countries such as Panama, Saudi Arabia and Bahamas have now been included. Ireland is not included, because it is in the EU, even though it has been used extensively as a country into which to shift profits.


Business is harder to do with entities located in a blacklisted country, because banks operating in the bloc of 28 countries are expected to carry out additional checks on payments to and from a blacklisted country.


There is nothing wrong with a country changing its laws and its tax rate to attract business, but high tax jurisdictions, such as most countries in the EU bloc, don’t like it. Companies such as Amazon and Starbucks, have made extensive use of tax haven or low tax jurisdictions to mitigate taxes on their world-wide profits.


Intellectual property rights, for example can be based in a low tax jurisdiction such as the BVI and royalties paid for using the brand will lower the taxes in the high tax jurisdiction such as the UK and increase the profit in the BVI entity the low tax entity.  This practise is called base erosion and profit shifting (BEPS).


There is little that high tax jurisdictions can do to stop this practice other than to bully, and ‘name and shame’ – which is what the ‘blacklist’ is designed and succeeds in doing.


Take the Bahamas, it is a small jurisdiction which has succeeded in establishing itself as a financial centre. It wants to become the number one jurisdiction for headquarters of personal empires. Being included in the blacklist will damage its reputation for being a trusted place in which to base business headquarters.


The Minnis administration recognises this, which is why in December 2018, it made amendments to the Commercial Entities (Substance Requirements) Act and sent high level Government Officials to Brussels to meet with the European Commission. Despite these efforts it still failed to stave off entry on the EU’s non-conformation blacklist, and joins countries such as Afghanistan, North Korea, Iran, Iraq and Samoa which are not known tax havens. 


In particular, the Bahamas has been accused by the EU Commission of failing to satisfy the physical presence tests.


The EU sets out three objective criteria which a country needs to satisfy to stay off the EU blacklist


·      Transparency: whether the country is compliant with the international standards on automatic exchange of information (AEOI), exchange of information on request (EOIR), and that the jurisdiction has ratified the multilateral convention. The Bahamas tried to sidestep signing the multilateral convention a few years ago, until the EU forced it to sign through the use of its blacklist

·      Fair Tax Competition: the EU and OECD do not like countries such as the Bahamas charging zero rate of tax on its business income – which it calls a ‘harmful tax regime’. High level Government Officials I have spoken to talk of introducing a tax on business profits, but as yet have not done so, we need to wait to see whether the EU will demand this in due course, and

·      Base erosion profit shifting implementation; the EU wants to see only businesses with substance benefiting from low taxes; not businesses which book profits in the jurisdiction, but have no real presence. Where businesses do not have this ‘Inclusive Framework’, it will be added to the EU blacklist, which was the decision the EU Commission took about the Bahamas.


The EU through its harsh use of the blacklist shows us just how serious it is in stamping out tax mitigation which affects their countries’ tax revenue, even if it is completely legal. Naming and shaming works and the smart money now knows that it needs to build in substance or be investigated and attacked.


But this approach is not limited to international businesses. Trust structures must also have substance.


They need to have


·      No persons of significant influence, which could indicate that the settlor did not intend to set up a genuine trust by reserving powers to someone else who could remove and replace them

·      No persons who have no real knowledge and experience of the family, the family business or the family investments. The trustees must act as a prudent man of business and therefore must have the necessary qualifications to do so, and

·      No indemnity clauses, or non-interference clauses, if the trustees are not taking any responsibility for doing their job.



Most professional trustees are now looking to decouple the administration of the trust from the decision making, by setting up a special purpose trustee for their most significant clients working with GFOS. It is now accepted that tax authorities will do what they did with information they bought from a Liechtenstein Bank employee. HMRC systematically investigated every client of the bank who lived in the UK and argued that it could tax the settlor/ beneficiaries as if the structure did not exist.


If you would like to find out more or would like to book a meeting with Caroline, please phone on 020 3740 7422 or e mail on


You can also buy Caroline’s books, ‘When you are Super Rich who can you trust?’ and ‘Uncovering Secrets, How to win business from Private Clients’ direct from or from Amazon.