Light at the end of the tunnel?

David Lambotte, March 2013

David Lambotte is Manager of Trust services (Caribbean) at RBC Wealth Management.

National tax blacklists have been used by various Latin American and southern European countries to penalise or restrict their citizens’ dealings with low-tax jurisdictions. Supporters argue that it is perfectly reasonable for a country to pursue methods that defend its revenue systems, whereas critics believe that from an economic and industry perspective blacklists can be self-defeating – barriers to cross-border capital movements are not natural bedfellows for a productive economy. Perhaps the criticism heard most often in the trust and estate planning industry, though, relates to the fairness of such lists and, in particular, the methodology employed when formulating them.

National blacklists

While some blacklists are based on quantifiable standards – for example, the percentage of corporate or personal taxes payable in a foreign jurisdiction to determine whether they should be listed – in other cases there appear to be no criteria at all. This is something that Jason Sharman and Gregory Rawlings referred to as ‘arbitrary and discriminatory’ in their 2005 STEP report Deconstructing national tax blacklists. Certainly, in the absence of criteria, it appears that a sort of smell test is used, which is reminiscent of the Gordon Report in the US, which stated that ‘a country is a tax haven if it looks like one and if it is considered to be one by those who care’.

There is also evidence of following the crowd in determining blacklists, which has backfired once or twice. The Argentine government was embarrassed when it was revealed that it too had blacklisted ‘Patau’, a mythical island that had erroneously appeared on the Mexican blacklist (Mexico had intended to blacklist the Pacific island of Palau). Also, according to rumours, one Latin American country copied its neighbour’s blacklist into its own tax code, only to later discover that it appeared on that neighbour’s list and had therefore inadvertently blacklisted itself.


Running parallel, but at times intersecting the blacklists, have been the efforts of the OECD. In 1998, the OECD released Harmful tax competition: an emerging global issue, which identified ‘the lack of effective exchange of information’ as one of the key criteria in determining harmful tax practices. From 2004 to 2008, the focus on these ‘harmful tax practices’ culminated in the 2008 creation of the OECD Grey List of jurisdictions considered uncooperative in the transparency of their tax affairs and the effective exchange of information, officially known as ‘The list of uncooperative tax havens’.

Requests for removal from blacklists often get tied up with no sign of resolution

In 2009, key members of the international community, through the OECD, made clear their determination to take action against jurisdictions that did not commit to, or were not implementing, internationally agreed exchange of tax information. The Grey List members responded positively and made efforts to be designated as having substantially implemented the internationally agreed standard. A minimum of 12 tax information exchange agreements (TIEAs) was stipulated for meeting this standard, and a flurry of TIEAs based on the OECD pro forma agreement were pursued and signed in short order.

Impact of TIEAs on national blacklists

Following their newly promoted status as white-listed and cooperative jurisdictions in the eyes of the OECD, one would expect the list of countries appearing on national blacklists to have shortened. This has happened, but not universally and consistently. Taking Mexico as an example, the Mexican legislation clearly states that a TIEA between a blacklisted jurisdiction and Mexico will result in the jurisdiction being delisted. Interesting, then, that the Cayman Islands, having signed a TIEA with Mexico in July 2010, still finds that its TIEA has not officially entered force and that it therefore remains on the blacklist. Since that date, other jurisdictions have signed TIEAs with Mexico and seen them enter force, so it remains curious that more than two years later the Cayman Islands TIEA remains in limbo. Those more sceptically minded might deduce that the Mexican government was duty-bound to respond positively to the TIEA request from the Cayman Islands, but is more reluctant to allow it to come into force and necessitate the removal of the Cayman Islands from its blacklist. A less sceptical yet reasonable perspective is that a lot of countries find it hard to allocate time and resources to the maintenance of their national blacklists.

LightIn Argentina, numerous TIEAs have been executed and have entered force with blacklisted jurisdictions in the past few years. However, this does not appear to have resulted in changes to its blacklist. For example, on signing a TIEA with Argentina in August 2011, Jersey’s Assistant Chief Minister, Freddie Cohen, was quoted as saying: ‘Most importantly, [the Argentine Minister of the Economy] has gone on to say that once the agreement enters into force and there is strong evidence of its effective application with respect to banking information, the government of the Argentine Republic will take the necessary steps to amend the laws in its legal system so that all relevant “black lists” do not have any effect on Jersey’. Jersey, like many other jurisdictions that have entered into TIEAs with Argentina, is yet to be removed from the country’s blacklist.

The government of Venezuela does not even entertain TIEAs, so clearly these will have no impact on its blacklist’s future. Brazil appears to be going above and beyond the blacklist, having added a list of unacceptable entities (Dutch companies being one example). With Brazil having signed only four TIEAs to date, none of which have yet entered force, it will be a long time before the tide turns on its blacklist.

Time will tell

Of course, offshore jurisdictions can petition for removal, as many have tried. However, these requests often get tied up in red tape and stretched out with no clear sign of resolution. So while TIEAs have helped decrease the number of jurisdictions appearing on national blacklists, they do not appear to be a key driver of the demise of such lists. Perhaps the countries in question are not inclined to allocate the resources to maintain or replace their blacklists? Changing tax rules and systems is not an overnight process. They may also feel that bilateral information exchanges are too restrictive or difficult. Perhaps they are monitoring the success and economic impact of unilateral information exchange requirements such as the Foreign Account Tax Compliance Act before following suit? Time will tell.

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