OP-ED: Why Europe is Ill-Suited For The Business of Blacklisting So-Called ‘Non-Cooperative’ Jurisdictions.

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I AM NOT A FAN OF THE USE OF UNILATERAL MEASURES IN international diplomacy; including the use of tax haven or other types of blacklists related to compliance with global norms on transparency and information exchange. Although we often think of this kind of state action in the context of armed conflict where there are clear protocols on the circumstances where such interventions may be justified and managed with the United Nations structure.

Following the work on harmful taxation in the late 1990s, the threat of war is not the only context for the use of such ‘defensive measures’. In fact, one of the basic principles of good global relations in the post- World War II era of sovereign relations is the preference for collective action for security. This pillar of diplomacy precludes unilateral state action in times of misaligned opinions among states which, if left to a consideration of domestic concerns, would tend towards states acting, not in consort, but on their own behalf and in their own interest.

There is no international organisation that manages international tax matters on a truly multilateral basis, but this does not mean that in matters of transparency and exchange of information for tax purposes states should use this to justify unilateral action to compel compliance via regulations that have been crafted and applied by a group that, although almost universal in membership, nonetheless does not meet the definition of a Bretton Woods institution.

Whilst by no means perfect, it must be said that the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) which brings together 135 countries to craft, implement, and monitor international tax law, policy and practice, is the only organisation that comes close. Moreover, with its 15 observers representing a number of tax and non-tax global entities, it leaves no doubt that in matters of the international aspects of tax the Global Forum is the authoritative voice in these matters.

It is hoped that the Global Forum will evolve into a more readily identifiable international body with the full suite of checks and balances central to the orderly conduct of state tax relations, however, it would be naïve to think that such a transaction would find acceptance among those members who are able to exert disproportionate influence on the work of the Global Forum by virtue of their membership in ‘closed clubs’ like the G20, G7 and the OECD. This means that certain members of the Global Forum are able to influence the initial development; and in some case the acceptance of, international tax norms and the implementation timetables.

Of course if the Global Forum did become a proper international body, it would find that its acronym if not its name is already in use by the World Trade Organisation. In considering the merits and de-merits of another WTO but this time dealing with tax, one cannot ignore the decades-long journey of international trade to its eventual permanent home after 13 years of multilateral negotiations. That said, the lengthy process which attends the creation and acceptance of diplomatic ‘infrastructure’ to manage the work of multilateral dialogue on matters of central importance to the global economy does not justify the perfunctory dismissal of the same.

This is especially dangerous when the lack thereof leads to the use of other machinery at the domestic and regional levels which purport to fill the void created by the absence of a global body and an associated dispute settlement mechanism.

Following the public disclosure of the theft of the 1.7m items of confidential client information, curiously described as the ‘Panama Papers’ the G20 announced that it publish a blacklist of countries (presumably not including any of its members) before the end of the 2016 G20 presidency which is held by China. While no criteria were identified nor has any been disclosed at the time of writing this piece, the prevailing view is that it will be informed by the annual OECD reports to the G20 on progress made by members of the Global Forum based on the implementation timelines decided by the OECD and adopted by the Global Forum. This is not the G20 that has threatened to blacklist countries in the past. This decision has be informed by the report of the OECD coming out of the annual plenary session of the Global Forum which is unlikely to take place before the G20 releases its list.

It would seem quite odd to decide a list before this year’s reports are made available to the G20. That said, it is possible that the G20 could look to the latest submission to the G20 by the OECD on Global Forum members, which technically is not one which requested any particular action on the part of the G20. Indeed, the latest ‘actionable’ document publicly available was presented to the G20 by the OECD in November 2015 and that was on the Base Erosion and Profits Shifting programme.

Not to be labelled as a ‘me too’ move because, to be fair, the European Commission (EC) did indicate, even before the G20 decision, that this year they would be publishing the revised results of their revamped list of countries who feature on the blacklists of European Union members. For convenience sake, despite the methodology employed by the EC, these results are characterised as a European Union blacklist. Moreover, in line with the European Union’s view of international tax reform as OECD- plus, the EC is also committed to setting out a list of defensive measures to be applied to blacklisted nations.

That takes the EC blacklisting beyond the ambit of the G20 exercise which tends towards penalties on transactions originating or destined to a blacklisted jurisdiction though the application of an obviously punitive withholding tax. These two developments sit alongside a number of national blacklists like the one maintained by Argentina, which was the subject of a recently WTO appellate body ruling. Since both Panama and Argentina are members of the WTO, they are both subject to the disciplines and the dispute settlements mechanism of the organisation which deal with complaints of trade distorting state measures. Panama complained that the Argentine blacklist was just such a measure as it offended a fundamental rule of international trade law that WTO members should treat ‘like’ goods in the same manner.

Since I do not intend on this occasion to examine the case nor the decision made, suffice to say that the appellate panel was equivocal on whether the Argentine blacklist was consistent with WTO law. Moreover, as these decisions are not binding on other dispute settlement panels even with identical fact patterns, it seems likely that other blacklisted Global Forum members may access international trade law to find redress when they find themselves blacklisted under the domestic law of a Global Forum member.

It is my view that it would be inappropriate and decidedly inconvenient for trade law to determine matters of international tax and for this reason as well as the fact that the appellate body stated that they were ‘not properly briefed’ (my paraphrase) it seemed prudent that no guidance was provided. I believe that this was the correct approach. It is this fact pattern that has triggered my review of my own thinking on blacklists. If it is understood and accepted, though the actual practice and a seemingly entrenched understanding that blacklisting countries is the most efficient and effective ‘stick’ in the ‘carrot and stick’ methodology of international tax compliance then it is logical to me that the only legitimate ‘home’ for such lists must be the Global Forum.

The lack of status as a full- fledged UN-modelled international organisation does not make the Global Forum any less equipped to both define the parameters of the listing exercise and perhaps more importantly, provide a platform for all countries to work together and within the previously accepted methodologies to populate and progressively graduate ‘listees’ from one or more categories that may be included in such a list.

My revised view on ‘blacklists’ is informed by the fact that it seems certain that this type of unilateral state action is entrenched in the exercise of international tax diplomacy. If that is to be the case, then I would have to endorse the Global Forum as the legitimate author of such a list which would place obligations on the jurisdictions lists to work towards exiting the list and an obligation on the part of those Global Forum members who are not listed not to take unilateral action at the domestic level to undermine the exclusivity of the Global Forum in these matters.