Brexit continues to hang over the relationship between the EU and the UK and this was reflected in mid-January. ZEDRA, the global expansion specialists, noted in January the EU’s parliament voted in favour of changing the regulations of what constitutes a “blacklisted” country.
The vote proposed to extend blacklist criteria to include jurisdictions with a zero percent tax rate.
ZEDRA detailed a total of 17 new countries could be blacklisted by this, which includes Cayman, Guernsey, Jersey and the Isle of Man.
Richard Wakeham, the Head of Commercial and Solutions, UK and Offshore at ZEDRA, reflected on whether Brexit is “to blame” for these changes: “The UK has fiercely protected the Crown Dependencies and Overseas British Territories in the past.
“Pre-Brexit, inclusion in the EU bloc meant that the UK had a louder voice on such issues and successfully petitioned the EU to take a softer stance on this issue.
“Clearly, the UK no longer has the influence it had within the EU and you only have to look at the current AstraZeneca feud to see how differently the EU will treat the UK in a post-Brexit world.
“The sands have shifted and the UK, including the Crown Dependencies its Overseas Territories, can expect a much colder approach going forwards.”
Richard went on to detail how these changes could impact the future of financial services in the UK: “We know the UK is giving very strong consideration to a ‘Singaporean-style’ approach in the future and it remains to be seen how the EU will react to any regulatory and legislative changes announced on the back of this ambitious project.
“If there is to be any hint of the EU being put at a competitive disadvantage, which surely must be the case if it progresses, we can expect to see robust action from the EU and, who knows, but could we potentially also see the UK being blacklisted too?
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“Any expansion of the blacklist must be made by the EU’s Economic and Financial Affairs Council following an investigation and recommendation by the EU’s Code of Conduct Group.”
Richard concluded by questioning the motivations of the EU following these changes: “Jersey, Guernsey, the Isle of Man and Cayman are highly regulated, reputable jurisdictions used by clients who are entirely tax compliant and proudly so.
“The compliance regimes in these jurisdictions are, at the very least, comparable, if not better than many countries globally including within the EU.
“Taken in the round, one has to question whether this is a genuine effort to tackle tax avoidance or a politically motivated power play.
“Either way, we will see offshore rise to the challenge and adapt as required as they have in the past.
“This could also be interpreted as a result of the pandemic, forcing the EU to find new sources of tax to help level up public finances.”
While Richard’s analysis shows these changes are primarily aimed towards tax avoidance, others warn regular banking and financial services could be hit hard, which in turn will create difficulties for UK consumers.
Chris Reed, the Head of Business Development at Protect Line, explained what could be on the horizon: “Providing financial services Crown Dependencies and Overseas Territories is already challenging from the UK.
“The difference in laws and taxes has resulted in many UK banks and insurers either setting up independent offshoots dedicated to these territories or ceasing service to them altogether.
“Even when services are available they are often not covered by UK based Professional Services Insurance and therefore not distributed by brokers.
“If the EU does decide to pushforward and extend the blacklist it will likely increase the divide in services available from the mainland to these regions.
“Anyone living in these countries who has taken a UK-based Insurance product should check their policy is still valid with their insurer.”
UK banks have already had to deal with pushback from the EU in recent months, with there being few signs of compromise.
In August 2020, several banks warned their expat customers their accounts may be closed as European “passporting” permissions became lost or obsolete following Brexit.
Recently, when questioned on whether a passport solution could be found, the French Minister Clement Beaune warned: “No, passporting is over, that is where I mentioned the consequences of Brexit.”
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