Naming, Shaming, and Stifling: How Tax Blacklists Hurt the Caribbean

To maximize the capture of tax revenues from their citizens and to stem the illicit flows of money from criminal activities or to terrorism, many advanced economies have identified other nations, as per their tax regimes, for punitive measures. These nations are on so-called “blacklists”. In this article, we examine the nature and impact of these blacklists for our Caribbean economies.

Organizations like the European Union (EU), the inter-governmental Financial Action Task Force (FATF), and the Organisation for Economic Co-operation and Development (OECD), spearhead the development of standards that must be satisfied to avoid being blacklisted. The EU maintains a list of “non-cooperative jurisdictions for tax purposes”. The criteria are based on principles of tax transparency, fair taxation and the implementation of international standards designed to prevent tax base erosion and profit shifting [1]. The FATF develops international standards to combat money laundering, terrorist financing and proliferation. The OECD’s Forum on Harmful Tax Practices (FHTP) addresses preferential tax regimes.

The Caribbean has been a focal point in tax transparency discussions. Many nations in the region rely heavily on company registration fees and foreign investment. The favourable tax regimes developed to attract these receipts have made the region targets for scrutiny. Since the creation of the EU’s list of ‘non-cooperative jurisdictions for tax purposes’ in 2016 [2], fifteen Caribbean territories have been featured.

As of February 2025, Trinidad & Tobago and the US Virgin Islands are two of the eleven global countries still deemed to have not fulfilled their commitments to comply. Trinidad & Tobago in November 2024 passed its Miscellaneous Provisions (Global Forum) Bill 2024 which strengthens the country’s commitment to global transparency and in February 2025, Trinidad & Tobago was removed from the OECD’s list but still remains on the EU’s list which may change once the list is updated this year.

In 2022, Anguilla, the Bahamas, and the Turks & Caicos were deemed to be non-compliant with the OECD’s base erosion and profit shifting (BEPS) standards [3], as these jurisdictions were characterized as “… all have a zero or nominal only rates of corporate income tax, are attracting profits without real economic activity”. Since then, these jurisdictions and others in the region have addressed identified deficiencies through increased economic substance criteria [4] for corporate domiciling [5].

The Caribbean’s reaction to inclusion on these lists and their implications is largely negative. The frustration goes beyond merely being featured on the lists but is also related to the perceived inconsistencies and unfairness in the criteria applied. In 2020, CARICOM deemed the EU’s blacklisting practices as “unilateral, arbitrary and non-transparent”. CARICOM called for the end of this harmful practice and for more collaborative efforts to combat financial misconduct. CARICOM’s concerns relate to the EU’s reluctance to recognize the region’s progress in compliance with global standards, the reliance on third party ratings to determine which jurisdictions are listed, as well as the lack of prior consultation with the affected states.

Commentators have also criticized the inconsistencies and lack of fairness with the EU’s decision-making process. The EU’s list has come to represent a “new form of colonialism” based on its perceived bias against “black-led countries”. Commentators have highlighted that Russia, the first predominantly white country to be blacklisted in response to their invasion of Ukraine, was only added a full year later. Critics have also noted that areas like Delaware and Wyoming possess tax regimes similar to the Bahamas or the Turks & Caicos but are not penalized by being blacklisted.

The EU’s blacklisting can have significant effects on Caribbean countries, particularly regarding the potential reputational damage. One consequence is the loss of correspondent banking relationships, which are crucial in facilitating cross-border transactions and international payments. Disruption of this process impairs the region which is heavily dependent on international trade, remittances and tourism. Additionally, blacklisted countries face various sanctions by EU member countries. These include higher tarrifs, as well as reduced access to international development funds. The reputational damage caused by inclusion on these lists can lessen investors’ attraction to and confidence in the region. The cumulative effects of these sanctions can impair the region’s development and further exacerbate existing economic difficulties.

While the EU’s tax blacklisting initiative may aim to combat illicit financial activities and practices, its impact on the Caribbean has been counterproductive. The effects resulting from this ‘name and shame’ campaign have the potential to undermine the development of the Caribbean financial landscape. A World Bank report showed that blacklists have little success in improving in tax governance or meaningful economic outcomes. Backlisted countries, which contribute to just 2% of global tax avoidance, endure unfair and disproportionate effects. Reform is needed to target the true culprits of harmful financial behaviour and to acknowledge the ongoing efforts of listed jurisdictions to meet the necessary criteria.

[1] Tax base erosion and profit shifting refers to the reduction of a country's taxable income due to legal or illegal strategies that shift profits, income, or deductions to lower-tax jurisdictions.

[2] The list was a response to the 2016 ‘Panama Papers’ leak which uncovered how wealthy persons, public officials and corporations use offshore jurisdictions to evade taxes and launder money.

[3] BEPS (Base Erosion and Profit Shifting) refers to tax planning strategies used by multinational corporations (MNCs) to artificially shift profits from high-tax to low-tax jurisdictions, reducing their overall tax burden.

[4] Economic substance refers to the requirement that businesses operating in a jurisdiction must have genuine economic activities there, rather than existing solely to take advantage of favourable tax rates.

[5] New legislations that enhance demonstrating economic substance include: in Barbados, the Corporate and Trust Service Providers Act (2021), in the Bahamas, the Commercial Entities (Substance Requirements) Act, 2018, and in the Cayman Islands, the Economic Substance Law, 2018. Additionally, ring-fenced zero corporate tax regimes for international business registrations are now virtually non-existent, therefore, both domestic and international entities operate on a level tax playing field.