France blacklists ‘tax havens’


As published in the Caymanian Compass – WEDNESDAY 4 SEPTEMBER 2013–tax-havens-/

by Michael Klein

Bermuda is one of the three new entries on France’s blacklist of uncooperative jurisdictions.

France has named Bermuda, the British Virgin Islands and Jersey in its official list of “uncooperative tax havens,” despite all three jurisdictions having signed tax information exchange agreements with the European country.

The French government last week published its updated list of what it considers uncooperative tax havens with regard to transparency and information exchange in tax matters in Journal Officiel, France’s version of government gazettes.

French tax laws apply extreme withholding tax rates of 75 percent on all capital flows from France to countries that are deemed uncooperative.

The French government gave no official explanation for the blacklisting, but the Financial Times quoted an official in the finance ministry in Paris, who said the new additions to the list were due to unsatisfactory compliance with an existing convention with France.

This indicates that the French government was not satisfied with all of the information it received in response to tax information exchange requests under the concluded agreements.

In the case of Jersey, the decision allegedly concerned an appeal by a French taxpayer against the release of his tax information under the tax treaty, the Financial Times reported.

The unnamed ministry official stated the blacklisting would not come into force before Jan. 1, 2014, giving the jurisdictions enough time to fulfill their obligations.

The blacklisted U.K. overseas territories and crown dependency reacted with surprise to the French decision. Government and industry representatives pointed to the transparency initiatives the three jurisdictions have undertaken, such as the conclusion of bilateral OECD tax information exchange agreements, the decision to join the Multilateral Convention on Mutual Administrative Assistance on Tax Matters, as well as the commitment to comply with the U.S. Foreign Account Tax Compliant Act and equivalent initiatives in the UK and Europe.

“Both Bermuda and BVI were very much surprised by the reports that France had added Bermuda and BVI to a list of non-cooperative jurisdictions,” said Kevin Butler, head of the Cayman Islands office of Conyers Dill & Pearman. “This is particularly so given that both jurisdictions have existing exchange of information agreements with France–along with numerous other countries, including most of the G20 countries. Both Bermuda and BVI are recognized as complying with the highest international standards on tax transparency and compliance,” Mr. Butler added. He therefore believes that French concerns will be resolved.

Geoff Cook, CEO of Jersey Finance, said, “The French administration’s decision is surprising and doesn’t appear to take into account at all the significant action Jersey has taken this year in support of international moves on transparency and international cooperation.

“Our understanding is that this is a bilateral issue relating to some outstanding tax information requests made by the French authorities, through the agreement Jersey signed with France in 2009,” he said. “Jersey is committed to effectively implementing all of its information exchange agreements with foreign authorities and continues to respond to information requests in accordance with Treaty requirements.”

Meanwhile, Jersey’s government said it is engaged with France and confident it can resolve the issue.

In Bermuda the Ministry of Finance said it has also contacted the French government to seek clarification regarding the action.

The Bermuda government noted that all of its internal processes for automatic exchange of information instruments such as U.S. and U.K. FATCA IGA Model 2 and the Multilateral Convention will be completed by the end of September 2013. The government therefore anticipates that Bermuda’s inclusion in the French list “will be short-lived or never happen if in fact that list is to be effective later than 2013.”

Once in force, a 75 percent withholding tax will apply to all capital flows from France to the blacklisted countries, including payments of dividends, interest, royalties, capital gains and salaries.

Mr. Cook told the BBC, “These rates are penal. They are much higher than they would normally be, but the reality is that doesn’t happen very much, so I don’t think it will have much impact at all in the short and medium term.

“The bigger issue is more reputational. You don’t want to be on a collision course with a major European nation.” Former French President Nicolas Sarkozy established the blacklist in 2010 to increase the pressure on offshore financial centers.

The updated list contained 10 jurisdictions, up from eight previously. In addition to Bermuda, the BVI and Jersey, it names Botswana, Brunei, Guatemala, the Marshall Islands, Montserrat, Nauru and Niue.

The Philippines were removed from the updated blacklist, after amending its double tax treaty with France with provisions on the exchange of information.