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US Frowns On European Union Tax Jurisdiction Blacklist

Tom Burroughes

9 January 2018

Last month's publication by the European Union of a blacklist of non-co-operating tax jurisdictions has drawn fire from the US government, angry that Guam and American Samoa were placed on the list.

Media reports said that Steven Mnuchin told EU Secretary General Jeppe Tranholm-Mikkelsen “there is no basis for concluding that American Samoa and Guam have any role in promoting the evasion or avoidance of taxes imposed by European Union member states.”

The Treasury Secretary's comments were contained in a letter, reports said.

This publication has sought confirmation of details from the Treasury and the EU. The European Council - the organization dealing with the matter - declined to comment to this publication.

In early December, the EU published a list of 17 jurisdictions that it said fell short of governance standards. The countries are American Samoa; Bahrain; Barbados; Grenada; Guam; Republic of Korea (aka South Korea); Macao SAR; Marshall Islands; Mongolia; Namibia; Palau; Panama; Saint Lucia; Samoa; Trinidad and Tobago; Tunisia; United Arab Emirates.

In his letter, Mnuchin reportedly said “the United States has full confidence in American Samoa, Guam, and all of the US territories; their tax administrations; and their compliance with international norms with respect to taxation.”

The EU had criticized Guam for not applying “BEPS minimum standards” and not signing or ratifying “the OECD Multilateral Convention on Mutual Administrative Assistance” on tax matters. (BEPS refers to "base erosion and profit shifting" - the practice avoiding tax by shifting the reporting of profits to low-tax countries.)

Cross-border angst
That the EU has slammed US-linked jurisdictions for allegedly falling short on tax avoidance/evasion prevention is ironic, given that the US has in recent years used its extra-territorial muscle to go after Swiss banks and punish France's largest bank, , for breaching sanctions against countries such as Sudan and Iran. (In that case, the US fine on the bank of almost $9.0 billion prompted anger in Paris.)

In fact, the US has led the way in some respects in punishing banks for operating secret offshore accounts. About four years ago, the Swiss and US governments signed an agreement under which Swiss banks that thought there was a risk of compliance breaches would sign non-prosecution agreements and pay settlements. More than a 100 such institutions did so. Separately, banks such as Julius Baer and UBS no longer offer offshore accounts to Americans. The US also in 2010 enacted the FATCA legislation to chase down expat US citizens that may be dodging taxes.

The long arm of US law even saw it initiate arrests, conducted by authorities in Zurich, Switzerland, of officials at FIFA, the global soccer organization, over suspicions of financial wrongdoing. The US got involved because dollar-denominated transactions were allegedly used.

Such actions have led some to argue that the US, which has associated tax jurisdictions such as American Samoa and Guam, operates double standards. For example, a Geneva-based university professor has written in these pages that US states such as Delaware, for example, enjoy levels of financial privacy denied today to Switzerland.

A number of jurisdictions are now signed up to the Common Reporting Standard, a set of agreements among countries - adopting standards crafted by the OECD - through which information upon request is exchanged to foil tax dodgers. The US is not a signatory to the CRS.