Demands to open up Britain’s shady network of overseas tax havens are set to be used by the EU as leverage to force concessions during Brexit trade talks, The Independent understands.
The European Commission will soon review whether British territories previously left off a Brussels tax haven blacklist should now be added – just as negotiations move on to the all-important future trade deal.
Publicly EU officials say the blacklisting process has nothing to do with Brexit, but separate sources in Brussels told The Independent British territories where billions of pounds are stashed will come into play.
One official made clear the EU would “go after” them, while another said the UK Government must ask itself if it wants to fly in the face of British public opinion on tax avoidance.
EU commissioners in December produced a blacklist of uncooperative tax jurisdictions, in a bid to clamp down on evasion and avoidance, tackle “threats” to members states’ tax bases and take on “third countries that consistently refuse to play fair”.
But the 17 jurisdictions listed included no British Overseas Territories or Crown Dependencies, despite them being named in earlier EU lists and some being implicated in the Paradise Papers scandal.
The EU had agreed the blacklisting screening process would be put on hold for territories caught in Hurricane Irma, meanwhile the UK is said to have pushed back against tougher sanctions for blacklisted territories.
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But officials confirmed to The Independent that the screening process will now restart in “early spring” for British territories including Anguilla, the British Virgin Islands and the Turks and Caicos Islands.
Other British territories – Bermuda, the Cayman Islands, Guernsey, the Isle of Man and Jersey – promised to try and address EU concerns to stay off the list, which will now be reviewed annually.
The Independent has been informed that as things stand it looks like Bermuda will be given a clean bill of health by the EU, but that outstanding questions remain for the Turks and Caicos Islands and Anguilla.
According to one recent study by Berkeley academic Gabriel Zucman, there is £1.4tn of “off shore wealth” located in the UK, Isle of Man, Jersey, Guernsey, Bermuda and Cayman Islands alone.
Meanwhile EU states including Spain, Italy, France, Germany, Belgium, Portugal and Greece are all countries with a higher than global average exposure to citizens and firms stashing wealth offshore.
Spokespeople at the European Commission said decisions on which jurisdictions to blacklist would be taken according to a strict and public criteria, not subject to any political pressure or consideration in Brexit negotiations.
But with the crucial Brexit trade talks to start in March, some officials privately acknowledge the dynamic is shifting, with the EU potentially using the process as leverage and vowing to pursue the territories for revenue post-withdrawal.
A European Commission source said it was “significant” that none of the territories were mentioned in the joint EU-UK report setting out the phase one Brexit agreement last month.
They went on: “The UK has always protected them in the past. That is not going to happen in future. We will go after them.”
MEPs have also spoken publicly about the need to avoid trade deals with countries who fail to assist in the fight against tax avoidance, and have previously named the UK as “slowing” the EU’s attempts.
It has also not gone unnoticed in Brussels that the British public have turned on tax-avoiding companies and individuals, following a spate of publicity around avoidance schemes.
Another Brussels source said: “The question is ‘would the Government of Britain want to put itself in a position where it runs counter to the public’s position on tax havens, in which companies can base themselves in and pay a smaller proportion of tax than they should be?”
EU officials are to meet in February to flesh out potential sanctions against blacklisted jurisdictions that refuse to help the bloc track down revenue.
As well as the reputational damage of being on the list, “defensive measures” touted so far include withdrawing EU grants, imposing reinforced monitoring on transactions and increased auditing for individuals and firms using the jurisdictions.
They might also see the EU demanding mandatory disclosure of documents, tougher legal regulation and higher business costs. Financial penalties have not been ruled out.
Chair of the Treasury Select Committee Nicky Morgan said: “I’m sure there is scope for leverage. To be honest, if the EU thinks trade negotiations are going well they won’t make a fuss about our overseas territories.
“If they think they are not, they will. They will flex their rules according to what suits them best.”
She added: “We certainly don’t want out trade talks to be jeopardised by the action or lack of action by an overseas territory.”
A Government spokesperson told The Independent that the UK “is at the forefront of tackling evasion and avoidance” and it supports the development of the EU blacklist.
He added: “Overseas territories are separate jurisdictions with their own democratically elected governments and they decide their own fiscal matters.
“Thanks to our leadership, all of our Crown Dependencies and Overseas Territories with financial centres are committed to all global tax transparency standards, including the Common Reporting Standard that makes it harder for companies and individuals to hide their money abroad.
“We are working to secure a deep and special partnership with the European Union. We start from the unique position of regulatory alignment, trust in one another’s institutions and a shared spirit of cooperation.”
Brexit talks are set to restart towards the end of January, with negotiations initially focussing on the terms of the UK’s transition our the bloc. But both sides are already drawing battle lines for the more substantial talks on future trade, with the UK seeking a broad free trade agreement.
In particular, the UK is desperate to ensure the deal includes single market access for London’s financial services sector, but Brussels is adamant it must mean firms in the City adhering to European law.