Five Pacific Islands are included in the European Union’s (EU) first blacklist [2], which names 17 tax havens, including American Samoa, Guam, Marshall Islands, Palau and Samoa as "non-cooperative jurisdictions for tax purposes".

Another 47 countries who are on a watchlist, promise to change their tax rules to meet EU standards. These countries include Hong Kong, Jersey, Bermuda, Cayman Islands, Switzerland and Turkey.

How companies and individuals hide their wealth in offshore accounts around the world from tax authorities, was revealed when the Panama Papers and Paradise Papers were leaked prompting the EU to do something about tax evasion.

EU tax commissioner Pierre Moscovici said substantial progress is being made with the blacklist.

“Its very existence is an important step forward. But because it is the first EU list, it remains an insufficient response to the scale of evasion worldwide.”

To determine which countries made the list, the EU index measured the transparency of a country’s tax regime, tax rates and if its tax system encourages multinationals to unfairly move profits to low tax regimes to avoid higher duties in other states. These also includes tax systems with incentives such as 0% corporate rate to foreign companies.

The type of action to take against offenders will be left to be decided by EU members as Ministers were against imposing a withholding tax on transactions to tax haven countries as well as other financial sanctions. Some states did not want stricter sanctions imposed.

But EU Commission Vice-President Valdis Dombrovskis said stronger countermeasures would have been preferred.

UK-based charity, Oxfam has criticized the list saying more countries should be added to the blacklist and that EU leader must not let too many tax havens off the hook. Even countries on the grey list should not get away scot-free.

But Tax campainger, Richard Murphy said that countries on the grey list that fail to reform their tax systems could face heavy sanctions. 

He said EU countries would be encouraged to disallow payments to these places for tax purposes or charging withholding taxes on interest payments to them “ensuring that all monies they receive have been taxed before getting there”.

“The EU is also saying to the UK that it is taking real measures against British Overseas Territories and Crown Dependencies, and the message is - if you go the same way as them with a similar low-tax regime after Brexit, you’ll be sanctioned too,” said Mr Murphy.

Countries that have been severely struck by disasters that should have been on the list were put on hold, however the EU will look at these jurisdictions next year.

The Pacific Island countries on the EU list of non-cooperative jurisdictions for tax purposes, are cited for various issues as follows,

"American Samoa does not apply any automatic exchange of financial information, has not signed and ratified, including through the jurisdiction they are dependent on, the OECD Multilateral Convention on Mutual Administrative Assistance as amended, does not apply the BEPS minimum standards and did not commit to addressing these issues by 31 December 2018.

"Guam does not apply any automatic exchange of financial information, has not signed and ratified, including through the jurisdiction they are dependent on, the OECD Multilateral Convention on Mutual Administrative Assistance as amended, does not apply the BEPS minimum standards and did not commit to addressing these issues by 31 December 2018.

"Marshall Islands facilitates offshore structures and arrangements aimed at attracting profits without real economic substance, does not apply the BEPS minimum standards and did not commit to addressing these issues by 31 December 2018. Marshall Islands' commitment to comply with criteria 1.1 and 1.2 will be monitored.

"Palau facilitates offshore structures and arrangements aimed at attracting profits without real economic substance and refused to engage in a meaningful dialogue to ascertain its compliance of with criterion 2.2. Palau's commitment to comply with criteria 1.1, 1.2, 1.3 and 3 will be monitored.

"Samoa has harmful preferential tax regimes, does not apply the BEPS minimum standards and did not commit to addressing these issues by 31 December 2018."