CARICOM has hammered the European Union (EU) over a revised tax governance blacklist that includes Caribbean countries, accusing it of infringing upon their sovereign rights
The March 12 revised list of countries purportedly not adhering to tax good governance includes five members of CARICOM: Barbados, Belize, Bermuda, Dominica and Trinidad & Tobago.
Anguilla, Antigua and Barbuda, the British Virgin Islands, the Cayman Islands, Saint Lucia, St Kitts and Nevis and The Bahamas have been placed on a monitoring list having made commitments to undertake reforms by December 2019.
According to a statement issued yesterday by CARICOM, the reasons provided by the EU Council to support the inclusion of the blacklisted States is grossly misleading and misrepresents the response, in good faith, of the Members since the initial listing in December 2017.
CARICOM considers this latest development as an attack on Member States’ economic prospects and an infringement of their sovereign right of self-determination in the best interests, the statement said. Further, the Commu-nity is concerned that the EU’s ‘tax good governance strategy’ is beginning to border on anti-competitive behaviour targeted at the decimation of the international business/financial services sector in the Caribbean.
The statement noted that the EU Council has stated that Barbados “Has replaced a harmful preferential tax regime by a measure of similar effect and did not commit to amend or abolish it by the end of 2019.” However, the statement said that Barbados undertook a review of its corporate tax regime in 2018 and decided to pursue tax convergence which removed the alleged ‘preference’ accorded the international business sector. Barbados now applies a tax rate of 1% to 5.5% on the taxable income of all corporations registered in that jurisdiction.
This policy has been sanctioned by the Organisation for Economic Co-operation and Development (OECD), as the recognised global authority on tax governance, which has reiterated that a low tax rate does not, in itself, constitute a harmful tax regime, the statement said. Moreover, the statement said that when Barbados requested clarification on the areas of divergence in the requirements for a ‘low tax jurisdiction’, as established by the OECD Forum on Harmful Tax Practices (FHTP) and the EU’s ‘fair taxation criterion’, the EU only responded to their request on the day after the issuance of the revised blacklist.
The case of Belize and Bermuda represents a clear departure from the practice of placing jurisdictions on the grey list (Annex II) for purposes of monitoring once they have given high level commitments to address alleged ‘deficiencies’, the statement said.
It noted that the EU Council has asserted that Belize “has not yet amended or abolished one harmful preferential tax regime” notwithstanding the legislative, administrative and tax reforms undertaken by 31 December 2018 which were sanctioned by the OECD. The EU has also asserted that Belize has introduced a ‘new and preferential tax measure’ in its 2018 tax reforms.
However, the statement said that Belize contends that the referenced tax rates of 1.75% to 3.35% on taxable income of international Business Companies and entities operating in Belize’s Designated Processing Areas are consistent with Belize’s historical income and business tax regime. Nonetheless, Belize acquiesced and provided, as demanded by the EU, an undertaking to amend this so-called ‘new preferential tax measure’ by 31 December 2019.
Despite Belize’s commitment to amend or abolish the “newly identified harmful preferential tax regime by the end of 2019,” which the EU stated it will monitor, as well as an additional high-level political and time-bound commitment to address any other concerns of the EU, the statement noted that Belize was included on the 12th March blacklist.
The case of Dominica, the statement said, highlights the insensitivity of the EU Council to a country that was devastated by two natural disasters in 2015 and 2017 and lost its largest investor. Yet despite this, the country completed all the required legislative and administrative reforms to which the government had committed in mid-2018 to undertake. Notwithstanding, the statement said that Dominica has been included in the revised blacklist because the jurisdiction “does not apply any automatic exchange of financial information, has not signed and ratified the OECD Multilateral Convention on Mutual Administrative Assistance as amended, and has not yet resolved these issues.”
However, the signature of the Multilateral Convention is dependent on the sanctioning of the request for admittance and a determination of readiness by the OECD and totally outside the control of Dominica, the statement pointed out.
According to the CARICOM statement, Trinidad and Tobago is in the unique circumstance where the Government lacks the parliamentary majority under the country’s constitution to undertake the legislative reforms required to be in compliance with the tax good governance standards. Yet, despite this circumstance, the EU has retained Trinidad and Tobago on the blacklist for having a ‘Non-Compliant’ rating by the Global Forum on Transparency and Exchange of Information for Tax Purposes for Exchange of Information on Request.
CARICOM reiterated its view in the statement that the labelling as ‘non-cooperative tax jurisdictions’ has wreaked irreparable reputational damage on small and highly vulnerable Member States. It said that CARICOM Member States have acted in good faith to mitigate this action by the European Union.
However, the process of engagement which has unfolded between CARICOM Member States and the European Union, specifically from the latter part of 2017 until the present, has regrettably, been devoid of the shared values that have informed their relationship over the years prior, the CARICOM statement lamented. There is a clear regression to the days of metropolitan imposed policies on the governed, it declared.
CARICOM said it sees the actions of the Economic and Financial Affairs Council of the EU as designed to destroy the financial sectors of Member States even as they seek to build resilience in all economic sectors in order to mitigate inherent vulnerabilities. CARICOM said it will continue to resist this retrograde approach by the EU.
