The European Union adds Russia to its blacklist of tax havens

The European Union has added Russia to its blacklist of tax havens after the country amended its business legislation in a way the bloc considers detrimental and unfair.

“The Russian Federation has not fulfilled its commitment to amend its harmful preferential tax regime,” economic and finance ministers from the 27 member states said after meeting on Tuesday.

The breakdown in dialogue between the EU and Russia due to the invasion of Ukraine prevented the tax frictions from being resolved, ministers noted.

“With Russia, obviously, currently there is no engagement,” said Valdis Dombrovskis, the European Commission’s executive vice-president.

“One cannot clearly say that Russia is cooperating on tax matters.”

Swedish Finance Minister Elisabeth Svantesson, whose country holds the EU Council’s rotating presidency, said the decision was not based on a “political reason,” despite the particular timing, but rather on a technical assessment that proved Russia had “failed” to address the harmful elements of its legislation.

Those elements relate to the income from intellectual property and so-called “grandfathering provisions,” which allows business entities to follow old rules instead of new ones.

The EU Council did not immediately reply 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.

First adopted in 2017, the EU’s tax list is updated twice a year.

Brussels insists the public catalogue is not meant to “name and shame” other countries, but to “encourage positive change” in tax practices through cooperation and continued dialogue.

Countries around the world are assessed against three key criteria: tax transparency, fair taxation, and measures to tackle base erosion and profit shifting (BEPS) by multinationals.

Those who don’t comply with the criteria are asked to make changes to their legislation.

If they refuse to do so, the EU can add them to the list, which doesn’t use the politically charged term of “tax haven” and instead speaks of “non-cooperative jurisdictions.”

The labelling doesn’t entail any reprisals or sanctions beyond the reputational damage.

On Tuesday, ministers granted Hong Kong, Malaysia and Qatar, three countries under scrutiny for their tax regimes, an extension to make reforms.

Barbados, Jamaica, North Macedonia and Uruguay were found to have completed the necessary steps.

Ministers also highlighted recent commitments made by Aruba, Cura?ao, Belize, Israel and Albania, an official candidate to join the 27-strong bloc.

The EU’s blacklist has often been the target of criticism from tax experts and civil society organisations, who argue its scope is far too limited and fails to target member states, such as Luxembourg and the Netherlands, that present characteristics of tax havens.

Chiara Putaturo, a tax policy advisor at Oxfam’s EU office, lambasted the list as a “total whitewash” for excluding jurisdictions like Bermuda and Cayman Island, two overseas territories known for hosting shell companies used by corporations to avoid paying higher taxes in their home countries.

“With this joke list, the EU continues to allow the super-rich and profitable to stash away their fortunes while ordinary people are battling with the cost-of-living crisis,” Putaturo said in a statement.

“The update is yet another missed opportunity to put an end to tax havens and get billions back to bridge the gap between the super-rich and ordinary people.”