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IPE special report May 2018

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Analysis: ATP’s tax policy highlights risk to reputation in offshore investments

In Denmark, the EU’s first-ever blacklist of tax havens has given politicians and pension funds another chance to consider the ethics of investing via opaque or tax-light locations.

The country’s biggest pension fund, ATP, has added the list of jurisdictions to a newly revised tax policy.

Dutch pension heavyweights, meanwhile, are choosing their words carefully rather than simply banning territories on the “EU list of non-cooperative tax jurisdictions”.

Public perceptions of what constitutes a tax haven are confused, one source points out.

The Panama Papers scandal of 2015 involved offshore business entities, but caused outrage because of the illegal purposes for which corporations based in the central American country had been used.

Then followed the Paradise Papers scandal last year, revealing the widespread – but legitimate – use of offshore jurisdictions for financial purposes.

Danish pension funds including PFA and Sampension defended themselves last November after a television documentary and a national newspaper named them as having investments in tax havens.

The paper said 16 out of 17 Danish pension firms it polled invested in countries seen as tax havens.

However, industry association Insurance & Pension (F&P) notes that, since 2015, Denmark has had tax information sharing agreements in place with all jurisdictions that it deemed havens.

Last month, the Danish minister of taxation Karsten Lauritzen was questioned regarding the EU’s blacklist. Lisbeth Bech Poulsen, a member of the tax committee belonging to the Socialist Peoples’ Party, pushed for legislative action to prevent funds investing via any of the countries on the EU’s blacklist.

At the hearing, Lauritzen mentioned the move by ATP to add the EU list to its own blacklist.

Bo Foged, ATP’s chief financial officer, says the revised tax policy for unlisted investments applies to the entire company and reflects its expectations of business partners and the companies in which it invests.

“In our view, aggressive tax planning represents an investment risk, hence, from 2018 we will not invest in countries that are on EU’s tax haven blacklist,” he says.

In its tax policy, ATP makes clear that its rule is to pay “the correct tax”, which means neither too little nor too much. Returns on investments abroad often have double taxation problems, the fund says. It tries to ensure as much of the return is only taxed in Denmark.

When ATP invests with partners it usually uses ‘tax-transparent’ structures, which allow international investors to avoid paying taxes over and above what would be due had the investment been held directly.

Such structures have been set up in the US – Delaware, for example – the Cayman Islands, Luxembourg, Denmark and the UK, the fund says.

At PGGM, spokesman Maurice Wilbrink said the pension fund manager was keeping a keen eye on the progress of EU’s tax haven blacklist.

The fund – which runs money on behalf of healthcare sector scheme PFZW – was sensitive about investing through perceived tax haven jurisdictions, he said.

“Investment structures should at all times be understandable, explainable and manageable,” said Wilbrink.

Meanwhile, Michael Vos, spokesman for APG, which manages investments for the Dutch civil service scheme ABP, said it believed in transparency and condemned practices involving tax abuse.

“We therefore applaud this EU initiative and will continue to follow developments on this topic closely,” he said.

The blacklist agreed by finance ministers of EU member states in December contained few jurisdictions associated with European pension fund investment vehicles: South Korea, Macao, Guam, Panama, Mongolia and the UAE were all included on the list, but the Cayman Islands, Bermuda and Luxembourg were absent.

Eight jurisdictions hit by hurricanes last summer – including the Bahamas and the British Virgin Islands – were given until early 2018 to respond, while “least developed countries” without financial centres were automatically excluded from the screening process.

On top of the 17 countries “failing to meet agreed tax good governance standards”, a further 47 were granted a reprieve by pledging to deal with shortcomings in their tax systems by the end of 2018 – or 2019 for developing countries without financial centres. Countries including Turkey, Hong Kong and Switzerland were placed on a so-called “grey list”.

The exercise is designed to help prevent the tax abuse exposed in scandals such as the Paradise Papers and Panama Papers, according to the European Commission.

Pierre Moscovici, EU commissioner for economic and financial affairs, taxation and customs, emphasised that work must go on, with the EU stepping up the pressure on blacklisted countries to change their ways.

This work has resulted in jurisdictions being recommended for removal from the blacklist, according to reports in January. Barbados, Grenada, South Korea, Macau, Mongolia, Panama, Tunisia and the UAE were all reportedly being considered for transfer to the grey list.

The EU’s tax haven blacklist

The EU’s initial blacklist of tax jurisdictions published last December included:

  • American Samoa
  • Bahrain
  • Barbados*
  • Grenada*
  • Guam
  • South Korea*
  • Macau*
  • Marshall Islands
  • Mongolia*
  • Namibia
  • Palau
  • Panama*
  • St Lucia
  • Samoa
  • Trinidad & Tobago
  • Tunisia*
  • UAE*

*These countries were expected to be moved to the ‘grey list’ at the time of going to press

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