Naomi Fowler ■ Tax haven blacklisting in Latin America


As governments (slowly) get to grips with the fact that tax havens are inflicting great harm on economies and democracies across the globe, facilitating mega amounts of tax dodging, and vast movements of criminal money by way of the secrecy services some of them offer, the question of our times is how we deal with them. Attempts to create tax haven blacklists (in order to potentially implement sanctions for non-cooperative jurisdictions) have so far been farcical as we’ve noted many times, most recently commenting on the European Union’s current work compiling its own blacklist system, here and here. So far the criteria for inclusion in tax haven blacklists has been weak, such lists have been ineffective and it’s been far too easy for some of the world’s worst offenders to wriggle their way out of them, or simply be big and bad enough not to worry about being included in the first place – for example – Tax Haven USA. If the EU, or anyone else really wanted to do this properly, the work’s already been done for them – with the best objective ranking available – the Tax Justice Network’s Financial Secrecy Index.


Anyway, we were very interested to see that Brazil attempted to tackle Irish tax havenry in September 2016 by putting Ireland on its tax haven blacklist, effective more or less immediately.

Today we’re happy to share an article by Macroeconomics Professor Juan Valerdi [1] (of La Plata National University and El Salvador University) based on the conclusions of his research looking at the approaches of 13 Latin American governments to tackling tax havens. The full document is available here and was part of the campaign “Que las trasnacionales paguen lo justo”. The Spanish version of this article was published by ALAI Magazine earlier this month and is available here. (You can read the Professor’s blog here).

While this article looks at what’s happening in Latin America, the conclusions and recommendations represent an approach to solve what he refers to as the ‘Tax Haven Networks’ problem at a global level. His research focused on 13 Latin American countries: Argentina, Bolivia, Brazil, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, México, Nicaragua, Paraguay and Peru. Here’s what he’s written for us:

Tax Haven blacklists in 13 Latin American countries

Identification is the first step of the fight against the Tax Haven Networks problem. When you look at the thirteen Latin American countries I analysed in 2016 you find that only six of them have active lists of tax havens (Brazil, Mexico, Ecuador, Colombia, Peru and El Salvador), two other countries have implemented the concept of blacklists into their legislation but have not yet issued a list and therefore are de facto not in operation (Nicaragua and Honduras), and four have not enacted any legislation related to tax havens or even transfer prices (Bolivia, Costa Rica, Paraguay and Guatemala).

The first thing you notice when analysing the tax haven lists of the six Latin American countries that do have them is their heterogeneity.

a) Only 17 jurisdictions are included in ALL the 6 active blacklists of Brazil, Mexico, Ecuador, Colombia, Peru and El Salvador.

b) 42 territories/jurisdictions can be found in ONLY ONE of the 6 active black lists of Brazil, Mexico, Ecuador, Colombia, Peru and El Salvador.

c) 73 territories/jurisdictions can be found in 2 to 5 of the active black lists of Brazil, Mexico, Ecuador, Colombia, Peru and El Salvador.

Measures related to sanctions, restrictions or prevention of tax evasion or tax dodging that are implemented in the regulations of the countries issuing the lists are even more varied in depth, scope, methodology and transparency, not only in the present but in the past evolution of each country. In general, these regulatory measures are related to transfer pricing issues and are eventually extended, or not, to other topics such as tax, financial regulations, anti-money laundering, commercial regulations, etc.

Undoubtedly there is a relationship between the depth with which the issue of tax evasion and avoidance is treated in terms of legislation with respect to Tax Haven Networks, the breadth of national regulations and the development of its Federal or Central Tax Administration. However, there are exceptions such as El Salvador, which, as a small country with an incipient development of its Central Tax Administration, has an extensive regulatory framework and issues black lists of tax havens and related measures every year.

The blacklisting of Ireland by Brazil

This case demonstrates the profound heterogeneity of treatment given by the tax laws of Latin American countries to the territories and countries that are part of the Tax Haven Network. The Brazilian blacklist carries the most weight in Latin America due to the size of its population and market.

Its current blacklist was implemented in 2010 and since then has undergone some modifications and additions. In my view, the incorporation of Ireland to the blacklist on the 13th of September in 2016 was a milestone of great significance, comparable to its attempt to include Switzerland, which resulted in an almost immediate suspension, and after 4 years it passed onto Brazil’s ‘grey list.’

While Brazil’s blacklist affects all transactions that take place between companies and people in Brazil with companies and people in the blacklisted territory, movement to the grey list just affects transactions with some specific types of companies in the grey-listed jurisdiction and don’t apply to all companies and people in that country.

The decision of the Federal Tax Administration (Receita Federal) of Brazil to add Ireland took place within the context of institutional weakness with respect to the Federal Government of Brazil as a result of  the dismissal of President Dilma Roussef and her replacement by a ‘pro-market’ government that is more in favour of deregulation. This institutional weakness together with the way it came to power make it more vulnerable to external pressures, not least from Ireland itself to reconsider its inclusion. Now, the government that took over from Dilma itself faces widespread and serious corruption allegations and looks likely to have been throwing around accusations in order to divert attention away from potential criminal prosecutions of their own.

It’s important to note that the inclusion of Ireland onto Brazil’s blacklist was sanctioned a few days after the scandal over Apple’s use of Ireland, in which the EU Competition Commissioner determined that the effective tax values paid by Apple to Ireland were very low and that EU legislation meant Ireland should claim 13 billion euros in taxes that should have been paid. That shows us how good decisions in one part of the world are critical to what happens elsewhere.

It should also be noted that in order for jurisdictions to be considered for inclusion on Brazil’s blacklist as a low tax jurisdiction, there needs to be a minimum rate of 20% tax on corporate income and below. This 20% or less rule isn’t the only thing considered. Since 2014, for countries demonstrating “good behaviour” (for example countries applying “international transparency rules” according to Receita Federal criteria) Brazil’s Receita federal authorities have the possibility to go from 17% and below, rather than the 20% and below limit. A special rule was created around this in 2014 which meant Hungary was taken off the grey list (now Hungary has decided to drop its corporate tax rate to 9% Brazil should reassess its position). This newish rule explains why countries like Slovenia (17%), Czech Republic (19%), Poland (19%) and the UK (19%) are not on Brazil’s black or grey lists.

Ireland’s theoretical tax rate on company revenues should have been included on Brazil’s blacklist 14 years before it actually was, since in the year 2002, the official Irish rate offered on corporate income was 16% and down to 12.5% in 2003.

International Solutions

In my view, any isolated measure of prevention by each country with respect to tackling the Tax Haven Network is at best ineffective and, in the long run, practically useless. The only real solution to the problem of tax avoidance and tax dodging associated with the Tax Haven Network should be at the global level with discussion in a participatory and democratic arena such as the United Nations. The debate should go to the very heart of taxation systems, which were designed nationally in each country based on the economic realities experienced at the beginning of the twentieth century and are ineffective for taxing multinationals today. The discussion should then focus on the creation of international rules that regulate and impose taxation on the productive and international trade forces that today are embodied in multinationals with presence and productive diversification in dozens of countries at the same time and that present competing levels of turnover bigger than the total tax resource levels of many developed countries. We are talking about a discussion of power where nation states have to cope with companies that in many cases exceed them in terms of their economic power. The integration of production companies with financial ones has meant that this question of growth of the power of multinational corporations will only increase and that the use of the Tax Haven Network seriously threatens the tax collection of all the world’s countries as well as global financial stability, as the financial crisis of 2008 demonstrated.

The Tax Haven Network has strong lobbying capacity at global and national level and in some countries members of the Tax Haven Network have been very effective in obtaining their exclusion from blacklists once included, or they avoid being included altogether. Panama, Switzerland and Luxembourg are clear examples of this.

Analysing the effectiveness of a country’s actions against tax havens by the use of its blacklist would be superficial and naive, since numerous tax havens can be included for the issuing country which are in fact not critical, while the most relevant can be excluded. It is important to note however that in my view, the OECD is playing a key role in excluding the most significant tax havens from national blacklists. While the OECD tries to show itself as playing a key role by attacking tax havens in public, in reality the OECD is providing a smoke screen for business as usual.

That is why today the USA and the United Kingdom continue to be the main promoters of ineffective OECD-driven measures, pushed and imposed by the G20 which have allowed the exclusion from backlists of jurisdictions that, while undoubtedly a part of the Tax Haven Network, simply sign an information exchange agreement within the framework of the “Convention on Mutual Administrative Assistance in Tax Matters” linked to the “Global Forum on Transparency and Exchange of Information With Fiscal Purposes” of the OECD. As a direct consequence of these actions, today the OECD does not have an operational tax haven blacklist or similar.

This debate goes to a much deeper level related to the survival of the welfare state that was in force in the twentieth century. To avoid confrontation with the Tax Haven Network on the belief that only small islands are being attacked that do not have any real power and that work in an anarchic and competitively isolated way[2] is a strategy that will fail.

Current and future politicians must assess whether they are willing to confront the Tax Haven Network system and its powerful direct and indirect beneficiaries, or continue to be partners and face the social consequences in their countries, ultimately ending in violent repression. At the heart of this battle that is taking place and will continue to be fought in the next few years is the financing of politics. As long as the political system continues to be linked to illegal activities, donations from the beneficiaries of the Tax Haven Network and support from the media multinationals, the battle will be clearly defined, as well as the consequences.


[1] Juan E Valerdi Economist, Macroeconmic Professor in the La Plata National University and El Salvador University. Formerly part of Jorge Gaggero’s research team on capital flows and tax havens in the CEFID-AR; Consultant in Argentina for UNPD, BID, BIRF; former advisor to the President of the Argentinian National Bank, President of the Argentinian Central Bank, President of the Financial Information Unit, National Deputies of the Argentine Federal Congress; Fiscal Coordinator of the Fiscal and Social Information System (SINTyS); part of the Tax Justice Together Europe Tour 2016 and representative of the Argentinian Central Bank on the Advisor Council of the Federal Tax Administration (AFIP).

[2] This is the case, for example, of Gabriel Zucman perspective on his book “The hidden wealth of the nations” (2015) when he presents the territories that belong to the Tax Havens Network as a group of isolated and weak islands that can be easily attacked with commercial or financial measures without considering them as several networks that benefit powerful forces in central countries and financial centres. That myopic diagnosis explains why Zucman proposes the IMF as part of the solution.

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