11 Dec 2017

CAPITAL letters - Issue 26

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The EU tax havens blacklist - implications for UAE

On 5 December 2017, the European Union Finance Ministers published the EU's blacklist of tax havens listing 17 "non-cooperative" tax jurisdictions, including the UAE in a step to counter worldwide tax avoidance. In all, the tax systems of 92 countries were reviewed as part of this exercise.

A total of 53 countries were initially on the blacklist which was eventually reduced to 17 countries making the final list. The EU list will be updated at least once a year and it is hoped that communication, cooperation, commitment and compliance will lead to countries being removed from the list over the next year.

According to the EU statement, the UAE is included in the blacklist as it “does not apply the BEPS (base erosion and profit sharing) minimum standards and did not commit to addressing these issues by 31 December 2018”. BEPS refers to an agreement signed by the Organization for Economic Cooperation and Development (OECD) member countries to tackle tax avoidance strategies that allow multinational companies to shift profits artificially to low or no-tax locations.

A further 47 jurisdictions are included in a public "grey" list of countries who have committed to changing their tax rules and will be blacklisted if they fail to change their tax rules by the end of 2018.

Key points to note

  • The EU blacklist is simply a list...and a jurisdiction within the list can be removed once it brings its tax system fully in line with the standards of good governance criteria.
  • As a first step, the UAE will receive a letter from the EU in the coming days detailing what it could do to be removed from the blacklist.
  • UAE officials have confirmed that they will be addressing the issues raised by the EU to meet deadlines imposed by the EU.
  • The EU has not agreed on the series of "defensive measures" which will be applied to blacklisted countries, although it says that these could be "tax and non-tax" based measures. The EU recognises that it will need the agreement of all Member States ('MS') before applying any such defensive measures and that any single MS could veto the measures.
  • The EU will be considering a "menu" of measures which individual MS could be invited to choose from in applying "measures" against blacklisted countries. At present, it is unclear what these measures will be.

Over the coming months, the Commission and MS will continue to monitor all jurisdictions to ensure commitments are met. It is expected that a first interim progress report is to be published by mid-2018.

In summary, it seems that the publication of the blacklist is merely an exercise by the EU to set out a unified strategy in tackling tax abuse worldwide. The sanctions for any "non-cooperative" jurisdiction remain unclear and may not materialise for some time and, hopefully, after more jurisdictions have been removed from the list.

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KEY CONTACT

Emily Osborne

Emily Osborne
Partner

T:  +44 20 7809 2433 M:  +44 7525 896 899 Email Emily | Vcard Office:  London

James Quarmby

James Quarmby
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T:  +44 20 7809 2364 M:  +44 7958 776 759 Email James | Vcard Office:  London

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