Your paper deals with the tax havens with reference, in particular, to the blacklist of non-cooperative third country jurisdictions adopted by the European Union in 2016. Before then, what were the main measures adopted in this area at EU and international level?

 As pointed out in the article (written with Alessio Persiani) the EU actions countering harmful tax measures aimed at attracting foreign investments date back to mid-Nineties. More specifically, these actions are connected on one side to the change in the approach of the EU institutions towards direct taxation matters and, on the other side, to the trend related to the enhancement of exchange of information relevant for tax purposes.

With regard to the approach of the EU institutions towards direct taxation matters, after the adoption of the 1990 Directives in tax matters (i.e. Parent-Subsidiary Directive and Merger Directive), the difficulties of further implementing the piecemeal approach followed by the European Commission at that time originated an intense debate at EU level on the direction to be followed for future EU actions in the field of direct taxation field. As significant progress were substantially blocked by the unanimity rule in the area of direct taxation, the European Commission, under the leadership of Commissioner for Taxation Mario Monti, adopted a radically-new approach, based on the inclusion of the different aspects of taxation in a single tax package, aimed at achieving at the same time the objectives of growth, employment and prevention of harmful tax competition and offering more possibilities for managing the diverse interest of the different EU Member States. In the area of business taxation this resulted in the adoption of a code of conduct addressed at all tax measures lacking a general scope of application and capable of affecting the location of productive activities within the EU, based on the principles of standstill (i.e. refraining from introducing new harmful measures) and rollback (i.e. removing existing harmful tax measures). Such an action – further reinforced by the parallel action carried out at the OECD level, which issued a recommendation to OECD Member States on the fight against tax havens and harmful preferential tax regimes – resulted in a detailed report elaborated by the Primarolo Group which, after having examined two hundred and eighty-two tax measures, considered sixty-six of them as being harmful tax competition measures. This illustrates how the attention towards tax havens firstly developed in the context of the new global approach of EU institutions in direct tax matters.

The second line of actions aimed at preventing tax havens developed through the adoption of measures enhancing the exchange of tax information among Member States. Reference is to the Directive no. 77/799/EEC of 19 December 1977 which has been replaced in 2011 by the Directive on administrative cooperation (Directive no. 2011/16/EU of 15 Feb. 2011) which further enhances the automatic exchange of information, thus improving tax transparency.

What are the steps that preceded the elaboration of the EU list of non-cooperative tax jurisdictions? In particular, what is the purpose of the blacklist?

 The rationale underlying the black list should be identified in the acknowledgment from both EU Member States and the European Commission that a common approach against non-cooperative jurisdictions would have a powerful dissuasive effect and prevent companies from abusing mismatches between the different national systems, that such an approach would give international partners greater clarity on the EU’s expectations in this field and would reduce unnecessary administrative burdens for businesses.

In its conclusions of 25 May 2016 the EU Council agreed on the establishment of an EU list of third country non-cooperative jurisdictions, providing the Code of Conduct Group with the mandate for screening and listing these jurisdictions.

The list has been compiled based on a three-step process. Firstly, a preliminary assessment of 213 countries was carried out on the basis of 165 indicators (encompassing, the economic ties with the EU, the financial activity, the stability factors and the risk factors) developing a scoreboard of countries to be investigated in greater detail. As a second step and based on the scoreboard the European Commission and the Code of Conduct Group started a dialogue with ninety-two jurisdictions to allow them to express their point of view on the tax good governance strategy and to react to the concerns raised by the European institutions. The third and final step encompassed the listing of the non-cooperative jurisdictions, on the basis of the three criteria set out by the EU Council in late 2016, i.e. (1) tax transparency, to be assessed on the basis of the effective implementation of the OECD Common Reporting Standard, the qualification of the jurisdiction as largely compliant for the purpose of the OECD Exchange of Information on Request and the effective exchange of information – both automatic and on request – with all EU Member States; (2) fair taxation, to be checked having regard to the absence in the jurisdiction of both preferential tax regimes to be deemed as harmful in the sense of the 1998 Code of Conduct for business taxation and measures addressed at offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction; (3) implementation of anti-Base Erosion and Profit Shifting (BEPS) minimum standards.

The paper refers to the use by the EU institutions of both soft law and hard law legal instruments in tax matters. What are, in your opinion, the reasons for this choice?

In the activities aimed at contrasting harmful tax competition measures EU institutions generally relied on soft law provisions, even if backed by the potential application of hard law rules and, more specifically, of those concerning state aid. Although not legally binding, soft law provisions are not without effects, both in respect of EU Member States and countries deemed as tax havens. With regard to EU Member States, the recommendations addressed to them and containing the legally nonbinding invitation to conform to a certain behaviour, act on one hand as a tool to clarify the interpretation of both domestic rules and EU provisions and, on the other hand, as a criterion for assessing the legitimacy of the behaviours adopted by the same EU Member States.

Furthermore, soft law rules originate a ‘moral’ obligation for the EU Member States, as a stimulus to act in a certain direction or to refrain from behaviour that contrasts with the general interest or with the objectives of the EU. The resolutions of the Council – as the one which adopted the code of conduct on business taxation – and the communications of the Commission play a pressure function both between the EU and the Member States and among the same Member States.

The adoption of the blacklist is the last step of a long established EU policy aimed at establishing a common approach by Member States in this area. In this regard, the paper highlights some critical profiles. In more general terms, what are, in your view, the aspects should be taken to improve Member States’ cooperation in this area?

The definitions adopted in the blacklist are still elastic and non-clear-cut, leaving much room for a non-transparent negotiation between the relevant jurisdictions and the European Commission. In this respect, the provision of an institutionalized tax coordination process could encourage cooperation between EU institutions and non-cooperative jurisdictions, improving the degree of transparency of the entire process. This would also positively affect the coordination of the different blacklists adopted by EU Member States, which are currently not coordinated with the EU blacklist. Furthermore, the EU blacklist does not solve the issue of tax competition measures having a general scope of application within the EU area. Arguments supporting an activity of contrast against these regimes could be derived from international provisions adopted at UN level and, more specifically, from Article 2, paragraph 1 of the International Covenant on Economic, Social and Cultural Rights which obliges each State ‘to take steps, individually and through international assistance and co-operation, especially economic and technical, to the maximum of its available resources, with a view to achieving progressively the full realization of the rights recognized in the present Covenant by all appropriate means, including particularly the adoption of legislative measures’.