In response to the public outrage after the latest leaks of Paradise Papers, the Franco-German axis pushed the EU finance ministers to adopt a tax haven blacklist. This list is inviting a new tax diplomacy of the EU and shows the other countries that the European Union does not hesitate to go further than any international organizations, including the OECD, in the fight against tax avoidance. Rather than focusing solely on more transparency from these “tax havens,” the EU wishes these countries to require all companies registered on their soil to have “substance.” While relatively vague, this requires the companies to actually undertake certain activities in these countries. If the countries want to avoid being included on the list, they need to effectively outlaw “shell” companies.
This seems to have worked at least for a few countries as the final blacklist includes only 17 of the 25 included in the draft blacklist. However, worries remain whether the EU understands that there are a few countries within its own bloc that share vast similarities with these offshore tax havens. For example, Luxembourg and Ireland know how to help multinational companies avoid taxation on the vast majority of their profits. In order to avoid being labelled as superficial, the EU needs to approach the fair taxation around the world in similarly fair manner.