The European Union (EU) has taken a U-turn by removing the United Arab Emirates, Switzerland, and 5 other countries that were previously tagged as tax havens from the Union’s blacklist and gray list respectively.
This announcement was made public by the bloc’s finance ministers on Thursday. The decision came in after the 28-nation EU committee reviewed the countries’ commitments to avoid being tax havens.
The EU created two lists, both for tax havens in 2017. The different lists were to track the different levels of commitment to EU tax laws by the countries. Countries that are usually removed are from the gray list. This list indicates a country’s commitment to abide by the EU’s tax laws.
Switzerland had been on the list since December 2017 and was only recently removed from the gray list after it delivered on its pledged commitment. Other countries that were also removed from the gray list include Costa Rica, Serbia, Mauritius, Albania.
However, the UAE got a double-pass from the blacklist to no-list after rushing through its tax laws in September. Prior to the removal, the UAE was the biggest tax haven to be blacklisted. Other countries on this list have shown no commitment to abide by the EU’s tax laws.
Countries from the gray list can also be transferred to the blacklist if they fail to meet their commitments or back out from it. The countries in this list have higher restrictions on trade with the EU.
The aim of the blacklist is to shame countries and territories supporting the evasion of tax through loose tax laws. The countries and territories that remain in the blacklist are Trinidad and Tobago, Fiji, Samoa, Oman, Vanuatu, Belize, Samoa, Guam, and the U.S Virgin Islands. Also, there are about 30 jurisdictions in the gray list, all of which will be up for review in 2020.
The EU blacklisted the United Arab Emirates in December 2017 because it was facilitating offshore arrangements that attracted overseas without reflecting genuine economic activity in the region.
The United Arab Emirates (UAE) joined other countries to leave the EU’s blacklist in October. The EU’s Code of Conduct Group on Business Taxation confirmed this following the creation of Economic Substance Regulations in the UAE. UAE Ministry of Finance also issued specific Guidance on those regulations.
This development is welcomed by major financial institutions and international investors. Besides, the Economic Substance Regulations ensured more compliance and substance requirements for several UAE entities.
Economic Substance Regulations and Guidance
The Economic Substance rules dictate obligatory levels of substance for UAE entities, as well as corporations, branches, and rep offices (including those primarily based in any of the UAE’s Free Zones) that perform any of the subsequent geographically mobile activities (or, Relevant Activities):
From 2020, all UAE entities with a license to hold out activities within the UAE can ought to offer the administrative unit with a notification (Notification) whether or not they perform any of the Relevant Activities within the UAE, and whether or not a part of their financial gain is subject to tax outside the UAE.
Those entities playing Relevant Activities within the UAE are needed to submit associate degree Economic Substance Report (ES Report) to the administrative unit.
The E Report lays down specific data regarding its compliance with the Economic Substance Tests (ES Tests). Penalties and potential exchange of knowledge (EOI) might apply as a result of non-compliance with the E Regs.
The punishment for failing to supply the Notification, or for giving inaccurate data, area unit between AED10,000 and AED50,000. Moreover, similar fines apply to establishments that fail to go with the E Tests for initial time failures.
Also, penalties of up to AED300,000 apply to consequent failures. Subsequent failures to satisfy the E Tests lead to the suspension of the entity’s business license. In the case of non-compliance with the Tests, the UAE Ministry of Finance will exchange data result with the competent authorities of the jurisdiction.
European Union announced that United Arab Emirates and Switzerland were amidst the countries dismissed from the list of the tax havens countries. Switzerland expressed its obligation to amend and reform its tax rules. The European Union removed seven (7) countries from its blacklist of tax havens. On 15th November, 2019, the bloc’s Ministers of Finance expressed that the EU blacklist exposed 17 tax havens. The United Arab Emirates and the Marshall Islands were removed from the blacklist, while Switzerland was among the five (5) countries deleted from the grey list. Countries on the gray list were being monitored by the EU after promising to respond to EU tax laws. Countries such as Switzerland, Albania, Mauritius, Costa Rica and Serbia have implemented prior to their deadline to accord to all required amendments with EU good governance tax policy. Countries on the blacklist haven’t provided any commitment to EU. UAE was absolutely removed from the blacklist after hastening through September 2019 tax reform. UAE then continued to charge no corporate tax but was removed from the blacklist as it developed new rules as regards offshore structures in September 2019. The blacklist included Switzerland since it was set up in 2017, following the international revelations about global tax scandals in Panama Papers.
Six countries and three territories were still included on the blacklist. The countries include Belize, Fiji, Oman, Samoa, Trinidad and Tobago, Vanuatu while the territories include the US territories of American Samoa, Guam, and U.S. Virgin Islands. Since 2017 till date, the number of countries and territories on the blacklist kept on fluctuating between 5 and 17 while about 30 territories remained on the gray list until further review in 2020.
On the 10th October, 2019, the European Union removed United Arab Emirates and Switzerland from its list of tax havens giving two global hubs for multinational tax schemes.
An exemplary review of its bloc’s lists of countries, European Union Minister of Finance concluded on excluding United Arab Emirates on the basis of adopting new tax rules on offshore structures in September and has passed the required reforms to improve its tax policy framework.
Prior to their deadline, countries like Costa Rica, Switzerland, Albania, Mauritius and Serbia have implemented all their necessary reforms to comply with the EU tax good governance principles. The EU’s grey list has included Switzerland since its launch in December 2017 as the country was regarded to be having unbalanced or inadequate tax rules, though it had great interest to reform them. At a press conference, the European Commissioner for Economic Affairs, Pierre Moscovici, asserted that “If Switzerland is off this list, it is a success for me. The best list is the shortest”.
Switzerland had approved a tax reform since October last year. Ms. Chiara Putaturo, Oxfam’s EU Policy Adviser on Tax said that “the EU has whitewashed two of the world’s most harmful tax havens”. The European Union (EU) has taken turn around decision by removing the United Arab Emirates, Switzerland, and 5 other countries that were previously tagged as tax havens from both the European Union’s blacklist and gray list. This announcement was made publicized on Thursday 15th of November, 2019, by the bloc’s Ministers of Finance. The EU’s committee assessed the countries’ commitments in order to resist being tax havens. The EU created two lists which were for the tax havens in 2017. The different lists were to track the different levels of commitment to EU tax laws by the countries. The countries that are usually removed are from the gray list. This list indicates a country’s commitment to abide by the EU’s tax laws Switzerland had been on the list since December 2017 and was only recently removed from the gray list after it delivered on its pledged commitment. Other countries that were also removed from the gray list include Albania, Costa Rica, Mauritius and Serbia.
Prior to the removal, the largest tax haven to be blacklisted was UAE. Other countries on this list showed no commitment to abide by the EU’s tax laws. Countries are also being transfered from the gray list to the blacklist if they fail to oblige or rescind from it. Moreso, countries in this list have higher trade restrictions with the European Union.
The main aim of this blacklist is to dishonor countries and territories in support of tax payments evasion via loose tax laws. Trinidad and Tobago, Fiji, Samoa, Oman, Vanuatu, Belize, Samoa, Guam, and the U.S Virgin Islands are examples of countries that still remain in the blacklist. Also, there are about 30 jurisdictions in the gray list, all of which will be up for review in 2020.
The largest financial centre that was blacklisted was UAE because it adopted new tax rules on offshore structures in September. UAE always tried to reduce all possible risks of tax evasion but also required that UAE introduced new tax rules specifically for companies with a real economic activity.