Korea, U.A.E. Set to Be Removed From EU Blacklist of Tax Havens
(Bloomberg) -- The European Union will probably remove South Korea and the United Arab Emirates from a blacklist of tax havens later this month, lifting the threat of reputational damage and punitive economic measures.
Following “new commitment letters signed at high political level,” the EU’s Code of Conduct working group on business taxation recommended to move the two countries, as well as Barbados, Grenada, Macau, Mongolia, Panama and Tunisia, from the list of non-cooperative jurisdictions for tax purposes to a gray list of countries that will be monitored for compliance, according to a document obtained by Bloomberg News.
The recommendation, which is subject to approval by EU finance ministers meeting in Brussels on January 23, leaves Bahrain, American Samoa, Guam, the Marshall Islands and a handful of other jurisdictions on the blacklist. They could potentially face sanctions for failing to bring their standards in line with the world’s largest trading bloc.
EU finance ministers agreed in December to “name and shame” 17 countries after months of screening and negotiations, stepping up efforts to fight against opaque practices that facilitate avoidance by multinationals and individuals. The step caused a brief market turmoil because a tax-haven label could discourage European companies from investing in respective jurisdictions.
Countries including Turkey, which were included in earlier drafts of the blacklist, succumbed to EU pressure, offering commitments to increase transparency and eliminate sweetheart tax deals that will be subject to monitoring and evaluation.
Code of Conduct
“All commitments officially taken by jurisdictions, as well as the implementation of the recommendations made by the Council in order to address open issues, will be carefully monitored by the Code of Conduct,” according to the latest document dated Jan. 12.
For the moment, remaining countries on the list face few consequences beyond reputational damage. The European Commission -- the EU’s executive arm -- argues the threat of being on the list can act as an incentive for countries to bring their tax systems in line with EU standards. But several states, including France, are lobbying for punitive measures.
Those could include limiting access for listed jurisdictions to the European Fund for Sustainable Development, as well as national initiatives such as reinforced monitoring of transactions, increased audit risks for taxpayers benefiting from the regimes at stake, and special documentation requirements.
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