The EU recently released a short list of 17 countries it is officially putting on notice because of their taxation policies.
Panama is on that list.
So is South Korea... as well as the U.S. territories of American Samoa and Guam.
In addition to this so-called blacklist, the EU has also named 47 countries to its gray list. This list includes several U.K. territories as well as eight Caribbean countries hit by hurricanes this year. The EU took pity, it seems, and decided to give these nations struggling with their natural-disaster recoveries more time to comply with the EU requirements before being moved to the dreaded blacklist.
Neither list includes any EU countries... even though several are well known for their favorable tax policies. There's a reason big companies like Apple and Amazon have decided to base activity in these EU jurisdictions and it has to do with minimizing their overall tax hits.
Ireland, Luxembourg, and Malta, for example, are all considered by many in the offshore world to be especially tax-friendly and so, by rights, should have been included on the black and/or gray lists. The EU seems to have chosen to ignore its own backyard.
Meantime, it is considering adding the United States to the list if the corporate tax rate is reduced from 35% to 20%, as is currently being discussed.
While tax evasion is illegal and should be controlled, capital goes where it's best treated. Apple and Amazon realized they would be taxed less if they had headquarters in Ireland, so they moved to Ireland.
The Panama Papers and the more recent Paradise Papers have brought big-time negative attention to countries where companies and individuals set up business and asset-protection structures. Panama was the center of the thereby-named Panama Papers, but the law firm outed in that scandal had offices in many countries and used jurisdictions other than Panama for most of the structures they set up.
Bermuda was at the center of the Paradise Papers debacle... but for some reason not named on the just released blacklist.
I know many Europeans who have chosen to live in countries that take a jurisdictional approach to taxation and, as a result, pay no income tax. These countries include Nicaragua, Costa Rica, Belize, and Malaysia, but none of those countries are on the blacklist just released either.
Portugal has its own blacklist that includes all no-tax and jurisdictional taxation countries. Use an entity from one of those countries to hold property in Portugal, and you'll be liable for penalty taxes in Portugal.
France, too. Hold real estate in this country in an entity from a blacklisted country and you pay an extra annual tax based on the value of the property.
Individual European countries have long kept their own tax blacklists, but now the EU is trying to standardize the lists and work as a single group to force countries worldwide to adhere to their taxation values or face consequences.
No consequences have been laid out formally with the announcement, but EU institutions are not permitted to work with blacklisted countries and financial transactions from those countries are expected to be more closely scrutinized.
On a practical level, those of us trying to diversify internationally and protect our assets through corporations or other structures in blacklisted jurisdictions will find investing and doing business in the EU more complicated.
In France, for example, banks are again lending to nonresidents. However, if you use an entity (a corporation that you use to hold real estate, for example) from a blacklisted country... or generate any income from a blacklisted country (rental income from a Panama apartment, say)... banks in France won't talk to you.
They'll see "Panama" in your file and move on. They don't want the hassle... the extra scrutiny from their bank regulators that lending to you might bring.
Despite the fact that you've done nothing illegal.
As the world's larger economies continue to try to squeeze the smaller countries that don't share their taxation philosophies, you need to be aware of the complications that can arise as you work to diversify and invest overseas.
One country that isn't on the EU blacklist (or Portugal's either) is the Dominican Republic. That's one more reason this country stands out among all your go-offshore options.
Lief Simon
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