The European Union’s list of tax havens is one of the highest standards for determining whether a country is a tax haven. Given the power of the EU and its member countries, the list holds a great deal of weight.
Recently, the organization removed the United Arab Emirates, Mauritius, and Switzerland from the tax haven list. This is good news for those countries. Many are in favor of the removal, but others call it a “whitewash.”
A Brief History of the Blacklist
The tax haven blacklist created by the European Union began in December 2017. It came as a result of the worldwide revelations about widespread tax avoidance schemes that both corporations and high-net-worth individuals used as a way to pay lower taxes. It also highlights the various jurisdictions that have shown themselves unwilling to cooperate with the European Union in relation to taxes.
Throughout the brief history of the EU tax haven list, it has proven to have harmful impacts on the countries listed. The states included on the blacklist suffer stricter controls, as well as damage to their reputations. The stricter controls only technically apply to the transactions completed with the European Union, but there can be wider implications, as well, as many other countries use the EU’s list as inspiration for their own blacklists.
It is relevant to note that the European Union will not automatically add a country to the blacklist simply because it does not charge taxes. This is just one sign of a tax haven but not enough to earn a spot on the blacklist. Other factors also play a role.
Removing Switzerland from the Blacklist
Switzerland was on the gray list, not the blacklist, but has since been removed. This list includes countries that committed to change tax rules following concerns from the EU. The European Union took it off the list after Switzerland delivered on those commitments.
Removing the United Arab Emirates from the Blacklist
To maintain the accuracy of the blacklist for tax havens, the European Union makes it a point to regularly review the list. Recently, the ministers in charge of the list decided to remove the United Arab Emirates from it. This removal came in September due to the country adopting new rules related to offshore structures. According to the EU, these new rules gave the UAE a clean sheet in regard to tax practices.
However, the state still charges no corporate taxes. As such, it is a potential target for firms that want to avoid taxes in their countries of operation. The new rules in the United Arab Emirates that led to its removal from the list are the direct result of an EU request. Specifically, the EU requested that the UAE create rules that only let companies with real economic activity in the country to incorporate to reduce tax dodging risks.
There were also negotiations between the EU and the UAE as to what was a sufficient modification to meet the requirements. Specifically, an earlier draft included exemptions for entities that the UAE government or Emirates had indirect or direct ownership in. the compromise was that the exemption only applies to companies where the government has at least 51 percent direct or indirect ownership of the capital.
Other Recent Removals
Recently, the Marshall Islands were also removed from the EU’s blacklist. The gray list recently saw the removal of Mauritius, Costa Rica, Serbia, and Albania. Now, there are nine extra-EU jurisdictions on the blacklist and about 30 jurisdictions on the gray list.
The criticism for the removals remains, with Oxfam representatives pointing out that the removed countries will continue offering rules that appeal to companies and individuals who dodge taxes.
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