The European Union has added Russia to its blacklist of tax havens after the country changed its trade laws in a way the bloc considers harmful and unfair.
“The Russian Federation has not kept its commitment to modify its harmful preferential tax regime”, declared the Ministers of Economy and Finance of the 27 Member States. after Tuesday’s meeting.
The breakdown of dialogue between the EU and Russia due to the invasion of Ukraine has prevented the resolution of tax frictions, the ministers noted.
“With Russia, obviously, there is currently no engagement,” said Valdis Dombrovskis, executive vice-president of the European Commission.
“It cannot be clearly said that Russia is cooperating on tax issues.”
Swedish Finance Minister Elisabeth Svantesson, whose country holds the rotating EU Council presidency, said the decision was not based on a “political reason”, despite the particular timing, but rather on an assessment technique that proved that Russia had “failed” to deal with the harmful elements of its legislation.
These relate to intellectual property revenue and so-called “grandfathering provisions”, which allow business entities to follow the old rules instead of the new ones.
The EU Council did not immediately respond to a request for further explanation.
Also on Tuesday, ministers added the British Virgin Islands, Costa Rica and the Marshall Islands to the blacklist, bringing the total to 16 jurisdictions.
“total whitening”
First adopted in 2017, the EU tax list is updated twice a year.
Brussels insists the public catalog is not intended to “name and humiliate” other countries, but to “encourage positive change” in tax practices through cooperation and ongoing dialogue.
Countries around the world are rated against three key criteria: tax transparency, fair taxation and measures to combat base erosion and profit shifting (BEPS) by multinationals.
Those who do not meet the criteria are urged to make changes to their legislation.
If they refuse to do so, the EU can add them to the list, which does not use the politically charged term “tax haven” and instead speaks of “non-cooperative jurisdictions”.
Tagging does not result in retaliation or sanctions beyond reputational damage.
On Tuesday, ministers granted Hong Kong, Malaysia and Qatar, three countries under scrutiny over their tax regimes, an extension to carry out reforms.
Barbados, Jamaica, North Macedonia and Uruguay have taken the necessary steps.
The ministers also highlighted recent commitments made by Aruba, Curaçao, Belize, Israel and Albania, an official candidate to join the bloc of 27 countries.
The EU blacklist has often been criticized by tax experts and civil society organisations, who say its scope is far too limited and does not target Member States, such as Luxemburg and the Netherlands, which has characteristics of tax havens.
Chiara Putaturo, tax policy adviser at Oxfam’s European office, called the list a “total laundering” for excluding jurisdictions like Bermuda and the Cayman Islands, two overseas territories known for hosting front companies used by companies to avoid paying higher taxes in their home country.
“With this list of jokes, the EU continues to allow the super-rich and the most profitable to stash away their fortunes while ordinary people grapple with the cost of living crisis,” Putaturo said in a statement.
“The update is yet another missed opportunity to end tax havens and recoup billions to close the gap between the super-rich and ordinary people.”