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The European Union (EU) is using economic strong-arm tactics to pressure Vanuatu and other small states into imposing more corporate taxes.
On Tuesday, the European Union issued a press release announcing that it was adding Vanuatu to its list of 'non-cooperative tax jurisdictions'. The announcement states that the decision was made “based on an intense process of analysis and dialogue steered by the Commission.”
But officials at the Financial Intelligence Unit told the Daily Post that they had not been consulted or notified prior to the announcement.
Fiji, Samoa, American Samoa and the Marshall Islands are also on the EU taxation blacklist.
This is not the same thing as the OECD Money Laundering black list. Vanuatu remains on the OECD white list while work continues to put additional measures into place.
Floyd Mera, head of the FIU, responded to a request for information from the Daily Post, writing, “We are still a fair bit away from fully complying with the OECD taxation standards. We have given the reviewers our action plan but certain legislations/legislative amendments were not ready for November/December 2018 parliament session as per the action plan. This has set us back.
“However, an understanding has been reached with the reviewers for these legislative bills to be tabled and pass in the upcoming parliament session.”
The due date for this next legislative package is June 2019.
The European Union, on the other hand, does not seem to have been as communicative. Mera wrote, “Unfortunately, FIU has not received or seen any formal communication from EU regarding this re-listing. Upon receipt of this, the Taxation taskforce should be in a better position to respond and update its action plan.”
Foreign Minister Ralph Regenvanu was evidently frustrated by the announcement. On social media, he wrote that Vanuatu was “Trying to play a game when the rules… are always changing, the goalposts are always being shifted and there are several different referees”.
He is currently traveling in Europe.
Blacklisting could result in the EU blocking the flow of funds to and from Vanuatu. This could impact investment from Europe and would certainly degrade investor confidence, regardless of the source.
The blacklist was conceived as a way of forcing other nations into line with the European Community’s taxation regime. By making other jurisdictions less attractive, they felt they would be better able to secure their own tax revenues.
Mera told the Daily Post, “The adverse implication could be huge for a small island nation of Vanuatu (heavily dependent on import and FDI). The bargaining token would be enforcing those new taxation legislations by June 2019.”
He confirmed that Vanuatu’s specific failing in the eyes of the EU is that we don’t have a corporate income tax.
A member of the offshore finance community criticised the decision, accusing the EU of blatant hypocrisy. Nearly all of the major tax havens in the world right now, he said, are either European territorial holdings or actual EU members:
“The eight major pass-through economies—the Netherlands, Luxembourg, Hong Kong SAR, the British Virgin Islands, Bermuda, the Cayman Islands, Ireland, and Singapore—host more than 85 percent of the world’s investment in special purpose entities, which are often set up for tax reasons.”
If Fiji and Vanuatu are going to be listed, he said, then these economies should be added too.
The Vanuatu Chamber of Commerce and Industry were also blind-sided by the action. They declined to blame local officials for the lack of information, saying they would consult with them first to find out if anyone knew.
“The VCCI will work with all government agencies and partner agencies to fully understand the implications of this blacklisting and ensure that all of our members are kept abreast of the implications”.
The EU communique states that Vanuatu has been moved onto the blacklist “following commitments they had taken but have now to be blacklisted again for not having followed up”.
Presumably, this is a reference to Vanuatu’s proposed corporate income tax, which has been shelved at least until after the 2020 election.
The measures show a clear bias against small nations which often have no resource or industrial base, and therefore rely on favourable tax regimes to attract foreign direct investment. The territories named Tuesday include American Samoa, Guam, Samoa, Trinidad and Tobago, the US Virgin Islands, Barbados, United Arab Emirates, the Marshall Islands, Aruba, Belize, Bermuda, Fiji, Oman, Vanuatu and Dominica.
Only after they’ve taken on these minnows will they contemplate the larger jurisdictions. The press release states, “The screening will now be enhanced with more compulsory transparency criteria to be respected and three G20 countries added to the next screening, Russia, Mexico and Argentina.”
A freeze, if it happened, would not affect development project funding, which is administered directly by the EU.
SOURCE: VANUATU DAILY POST/PACNEWS
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