Caribbean Commununity leaders have yet raised the issue of creating an “appropriate intergovernmental tax body with the adequate means and powers to set standards and rules” that support an equitable and universal approach to an international tax governance infrastructure.
The call comes against the background of the European Union (EU) blacklisting countries which it terms non-compliant tax havens. The strategy of blacklisting and de-risking can potentially result in the withdrawal of correspondent banking services.
So far, the EU has used its tax good governance standard to categorise some Caribbean countries as non-cooperative tax jurisdictions, although international regulatory authorities, such as the Financial Action Task Force and the OECD Global Forum, have not indicated the non-compliance of said countries.
On Wednesday, at the just-concluded 31st Intersessional Meeting in Bridgetown, Barbados, CARICOM heads of government treated with the subjects of blacklisting, derisking and correspondent banking and highlighted blacklisting as an existential threat to the economic security of CARICOM Member States.
According to the communique issued at the conclusion of the meeting, the heads of government agreed that the defensive tax measures used by the EU could have adverse financial effects on vulnerable CARICOM States and their ability to attract the investments needed to build resilient economies.
“The measures have the potential of causing devastating economic, social and political consequences for our states as a result of the harm that will be inflicted on our global image, our economic competitiveness and resource mobilisation efforts,” the Communique read.
The region has consistently been the focus of blacklisting and its knock-on effects on CARICOM states has intensified advocacy against the EU’s stance. Late last year, for example, Prime Minister of Antigua and Barbuda Gaston Browne led a high-level delegation to a round table with the United States Congress Financial Services Committee.
“The measures have the potential of causing devastating economic, social and political consequences for our states…”
During the round table, both parties recognised the “mutuality of interest” of the Caribbean and the US. Prime Minister Browne argued then that the process of de-risking, which has led to a withdrawal of relations by some US banks from Caribbean banks, was a serious threat to the region’s welfare, including its capacity to import goods from the US.
There was also an acknowledgement of the impact of the withdrawal of correspondent banking relations not only in financial terms, but in the critical role it plays in global trade, investment, and other financial services.
“Heads of Government expressed appreciation for the opportunity to meet with members of the United States Congress Financial Services Committee to address the deleterious impact of de-risking on CARICOM Member States. That meeting resulted in a number of outcomes aimed at building the capacity of respondent banks in the Community and changing the risk perception of CARICOM States by US Government agencies. Heads of Government commended the CARICOM Ambassadors in Washington DC, USA, for their sterling work in advancing the CARICOM Advocacy against De-Risking,” the Communique said.
The round table was only one intervention CARICOM has acted on. From Bucharest to Basseterre, heads of government, the CARICOM secretary general and other community spokespersons have been bringing attention to the matter, seeking understanding and international advocacy of governments on the CARICOM’s behalf.
As the heads of government were meeting, the EU’s Economic and Financial Affairs Council announced that several CARICOM Member States had met the requirements of tax governance. Of the 16 jurisdictions, the EU’s Economic and Financial Affairs Council (ECOFIN) removed from Annex II, five were CARICOM Member States — Antigua and Barbuda, The Bahamas, Barbados, Belize, and St Kitts and Nevis, as well as two Associate Members — Bermuda, and the British Virgin Islands.
The countries, ECOFIN said, had “managed to implement all the necessary reforms to comply with EU tax good governance principles ahead of the agreed deadline and are therefore removed from Annex II”.
Member States welcomed the news.
“This news of our removal from the EU list affirms that The Bahamas takes its position as a global financial center very seriously. Coming off this list was not an easy process. We engaged many stakeholders and executed a comprehensive strategy to not only address the EU’s concerns but also to defend the jurisdiction against recent attacks on the legitimacy of our financial services business,” said Deputy Prime Minister and Minister of Finance of The Bahamas, K Peter Turnquest.
Belize described the news as a “significant outcome”.
“This is a significant outcome as Belize is now deemed to be compliant with the recent regulatory changes set out by the EU over the last two years. For many months, the Ministry of Finance has been working closely with the European Union to meet its requirements regarding both economic substance and its assessment as harmful preferential tax regime. Belize was not alone in facing these challenges. Moving forward, the Government of Belize will continue to engage with the International business and financial services sector to reaffirm the jurisdiction’s dedication to provide services that benefit both Belize and the global economy,” Belize said in a press release.
St Kitts and Nevis also weighed in on the news.
“St Kitts and Nevis made commitments at a high political level to remedy the European Union’s concerns, and experts from the EU assessed those commitments, with the Council’s code of conduct group carefully monitoring their implementation. The implementation of the tax reforms will continue to be monitored closely,” a press release from the government of St Kitts and Nevis said.
But ECOFIN has also placed an Associate Member, the Cayman Islands, on the list of non-cooperative tax jurisdictions.
The Cayman Islands said that the EU’s decision was “deeply disappointing”. Premier Alden McLaughlin, said that the country had already contacted EU officials to begin the process of being removed from the EU list of non-cooperative jurisdictions as soon as possible.
In the Communique, the Heads of Government noted that while some Member States have been delisted, other Member States are still negotiating with the EU to be de-listed or to avoid further blacklisting.