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Belize responds to European Union’s List of “Non-Cooperative Jurisdictions for Tax Purposes” Print E-mail
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Friday, 15 March 2019 00:00

On Tuesday, March 12, 2019, the European Union (EU) issued a list of “non-cooperative jurisdictions for tax purposes”, a list which Belize was put on. The list is used to identify jurisdictions which fail to meet “agreed tax good governance standards” and aims to act as an incentive for countries to bring their tax systems in line with EU standards, for fear of being named and shamed. Belize was added with nine other jurisdictions including Aruba, Barbados, Bermuda, Dominica, Fiji, Marshall Islands, Oman, Vanuatu and the United Arab Emirates. Already on the list were American Samoa, Guam, Samoa, Trinidad and Tobago and the U.S. Virgin Islands.

The list was established in December 2017 after disclosures of widespread tax avoidance schemes used by corporations and other individuals to lower their taxes. Those blacklisted only face reputational damage as no sanctions have yet been arranged by the EU. Jurisdictions that commit to abiding by the rules by a set deadline are removed from the list.

Commenting on adding the ten jurisdictions was Pierre Moscovici, EU Economic and Monetary Affairs Commissioner. Moscovici says that the “blacklist has had a resounding effect on tax transparency and fairness worldwide” and that by having a list, the EU is cutting opportunities for tax abuse.

The Government of Belize (GOB) has since responded to the list, rejecting Belize’s placement on the list. The statement says that GOB has significant concerns about “erroneous conclusions drawn about Belize’s commitment to work with its global partners in establishing a modern fair international tax framework”. It continues that it also has concerns regarding the process through which the EU concluded that Belize should be on the list.

The Organization for Economic Cooperation and Development (OECD) was assigned by the Group of 20 highly developed economies to set international standards of good governance. The Forum on Harmful Tax Practices (FHTP) is an arm of the OECD which includes Belize, the European Commission, the 15 EU member states, and 128 other jurisdictions. It brings together all jurisdictions on an equal footing and already developed a list of jurisdictions deemed to be engaged in “harmful tax practices” as part of a careful, inclusive, collaborative and consultative process.

The FHTP has reviewed several “categories” of regimes across the 164 jurisdictions since 2015, and having joined the BEPS initiative, Belize’s International Business Companies Regime (IBC Regime) was similarly reviewed.  In its report in October 2017, the OECD found that Belize’s IBC regime had potentially “harmful features”.  GOB subsequently undertook that the IBC regime would be modified to remove its “harmful features” in accordance with FHTP timelines by December 31, 2018.

Through an unattached process, following the undertaking given by Belize to the OECD, the European Union Code of Conduct Group (COCG) invited Belize to provide “high-level political level commitment” that Belize would also address deficiencies by December 31, 2018 or risk being included in the separate EU list of non-cooperative tax jurisdictions. Through two letters, dated November 14 and 16, 2017, Belize repeated its commitment to introduce legislation to address the harmful tax practices of the IBC regime and committed to amend the Export Processing Zone (EPZ) regime by December 31, 2018 in order to comply with the COCG’s criteria.

In December 2018, Belize’s National Assembly implemented the International Business Companies (Amendment) Act, 2018, and the Designated Processing Areas Act, 2018, which respectively sought to remove the “harmful features” identified by the OECD and/or the EU in these regimes. Consequential amendments were introduced via the Income and Business Tax (Amendment) Act, 2018, and the Stamp Duties (Amendment) Act, 2018 to bring IBCs and entities operating in EPZs into Belize’s income and business tax regime. The measures adopted with the changes were initially reviewed and discussed by the FHTP at its 51st Meeting held at the OECD Headquarters in Paris, France from January 9-11 2019. The FHTP reached new conclusions on 57 regimes reviewed at that meeting and on Belize’s IBC regime, the FHTP concluded, based on the measures Belize adopted, that the non-IP part of the Belize IBC regime is “Not Harmful (Amended)” and the IP part of the regime “Abolished”.

The COCG also reviewed the changes adopted by Belize at a meeting on January 30, 2019 and on February 1, 2019, the Chair of the COCG wrote to Belize that, in exercising its sovereign right to implement a tax regime consistent with Belize’s existing income and business tax regime, had introduced a “new regime” with similar harmful effects as the regimes that Belize abolished at the end of 2018. The COCG invited Belize to supply another high-level political commitment that it would amend or abolish this so-called “new regime” by December 31, 2019. The COCG made it clear that not providing such a commitment could lead to Belize being placed on the EU list of non-cooperative jurisdictions for tax purposes. Via a letter dated February 12, 2019, Belize complied and provided the new undertaking demanded by the EU.

Belize also continued to engage positively and actively with the EU to address all other outstanding technical issues with respect to Belize’s regime. Belize’s best efforts to address these technical issues did not find favor with the European Commission. Therefore, Belize wrote to the Chair of the COCG on February 26, 2019 and made a further high-level and time-bound political commitment to introduce additional amendments with consequential secondary amendments to other relevant legislation, where necessary, to address these other technical concerns. The mission included a commitment to submit the necessary draft legislation to Parliament in March 2019 with a view to having the amended legislation take effect from April 1, 2019.  These amendments will be introduced in Parliament on March 15, 2019.

Along with its legislative and technical efforts to respond to the EU, Belize has engaged the EU and key EU member states bi-laterally at the political level to share its progress in tax good governance standards, as well as to protest the EU’s unilateral, non-consultative and inflexible process.   Additionally, Belize takes part actively in the efforts of CARICOM and the African, Pacific, and Caribbean Group of States (ACP) to seek a halt to the EU’s practice of blacklisting and to engage third countries in serious consultative dialogue.

Having acted in good faith, Belize now finds itself unfairly and erroneously labelled by the European Union as a “non-cooperative tax jurisdiction”, via a process that contrasts starkly with the OECD’s inclusive and consultative methodology.  Indeed the rushed EU process can be characterized as non-consultative, inflexible and insensitive to the circumstances of small, highly vulnerable states such as Belize. The EU “listing” process is regrettably also devoid of the values of shared responsibility, mutual respect and accountability, fairness, and solidarity that underpins Belize’s relations with the EU and its member states. As well, objective empirical data supporting the EU’s allegation of harmful tax practices by Belize has not been shared. Indeed the European Commission to date has provided Belize with only a cursory basis for its determination, as well as failed to provide Belize with any meaningful opportunity to challenge its inclusion on its list—a central component of the inclusive OECD process.

Nonetheless, Belize remains committed to working positively and actively over the coming days and weeks, with the EU on the basis of a fair, transparent, and inclusive dialogue, to address all legitimate concerns and to ensure that Belize is promptly removed from the list of “non-cooperative jurisdictions for tax purposes”.

In this respect, Belize reaffirms its commitment to work with its global partners in establishing a modern fair international tax framework under which profits are taxed where economic activity and value creation occur.