The United Arab Emirates has officially signed up to fight offshore tax evasion and avoidance, becoming the 109th country to formally sign the Operation for Economic Cooperation and Development multilateral convention on mutual administrative assistance in tax matters.
The UAE reportedly decided to sign the convention after facing intense pressure from developed nations globally and intense criticisms of a lack of financial transparency in the country. Dubai has “a strong culture of an ask-no-questions, see-no-evil approach to commercial or financial regulation or foreign financial crimes,” the Tax Justice Network argued late last year, citing the UAE’s incredibly low tax rate and lax enforcement tendencies. Many argued that this lack of enforcement and transparency allowed thousands of companies operating in the country to thrive by evading their tax responsibilities.
The convention is one of the most important global agreements on tax avoidance and tax evasion. It facilitates the exchange of information related to tax matters between signatory countries, allows for simultaneous tax examinations, and also makes provisions for signatory countries to provide other signatories with assistance in tax collections. Moreover, the convention also guarantees broad protections of taxpayers’ rights.
The Council of Europe and the OECD first developed the convention in 1988. It was later revised in 2010 to align the content more closely with international standards on the exchange of information as well as to open it all countries, as opposed to just European states. The aim was to ensure that even developing countries could reap the many benefits of a more transparent tax environment, helping cut down on the corruption and tax fraud that can drain precious dollars from state coffers.
The UAE will reportedly begin sharing information with other signatory countries in 2018. The country is a notable hub for large banks that cater to wealthy clients, many of whom allegedly store assets in offshore accounts. In fact, the country is among the fastest-growing strongholds of private wealth among all of the Arab nations and the Arabian Gulf states. With the country signing up to the convention, it will be harder for the many expatriates working in the country to evade taxes in their home jurisdictions. Banks are reportedly already starting to warn their customers of the new international tax compliance measures that will be put into place.
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