The EU’s message to tax havens has one real target – and that’s the UK

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Do you remember what Philip Hammond once had to say about the UK post Brexit? In  January this year he went to Germany  to declare that Britain could transform its economic model into that of a corporate tax haven if the EU fails to provide it with an agreement on market access after Brexit. And now,  eleven months later  the EU has come up with  what looks like an innocuous tax haven listing until you read between the lines.  As I have  already noted,  implicit in this listing is a massive threat to at least five UK tax havens. The  EU has given notice to Jersey, Guernsey, the  Isle of Man,  Cayman and  Bermuda  that they have to transform their entire corporate tax systems if they are to avoid the imposition  of tax haven sanctions within a year.

At one level  you can read this as being the EU Code of Conduct on Business Taxation  giving notice that they are fed up with these places having got round earlier sanctions,  and I suspect that is true.

More specifically,  I think that there is a much deeper, implicit, and more important message inherent in this notice of intent,  which is quite specifically targeted at the UK. What the EU is saying  to Philip Hammond, and anybody else who cares to listen,  is that we can think about becoming a tax haven if we so wish but if we do  then a quite impressive list of sanctions will be imposed upon us. Of course  that would imply the opening of a trade war between the UK and EU,  but it was Hammond who fired the first shots in that, and  retaliation is to be expected.  I think it  has arrived.

There is one other point  to note.  I am quite sure that the Crown Dependencies will be taking comfort from the fact that many, if not most, of the funds they receive from the financial markets come from the City of London, which they expect to be outside the EU in the near future, meaning that the  sanctions proposed by Brussels will not apply.  I do not think that they should be too optimistic  about that.  My suspicion is that if Brussels thinks that the UK is helping these places get round EU sanctions  then they will be imposed upon the UK instead.

As  a tax haven listing today's announcement looks to be innocuous, and even a failure.  As a warning shot  to the UK,  and Philip Hammond in particular,  this looks like a broadside fired just across the bows. I think the UK  would be very wise to take note:  we can be a post Brexit tax haven if we wish,  but sanctions would quickly follow  and the cost to the City of London would be enormous.