Harare – While some rejoice that Namibia and Morocco have finally been removed from the European Union’s blacklist of tax havens, others are questioning the criteria used by Western countries to tar and feather other nations.
A recurring argument has been that countries like the United States and other Western nations – despite pretences to the contrary – are at the heart of illicit financial activities.
By definition tax havens are used by corporations and the super-rich to avoid paying their fair share of taxes. This deprives countries – especially developing ones – of significant resources to fund essential public services like education and health.
According to the African Union, the United Nations, Oxfam and others, Africa loses in the region of US$100 billion annually to tax avoidance by multinational corporations.
In 2017, the EU published its first “black” and “grey” lists of alleged tax havens.
Officially known as EU list of Non-cooperative Jurisdictions for Tax Purposes, the lists are compiled by governments in the Code of Conduct Group for Business Taxation, a secretive group of “experts”.
Governments screen countries according to three criteria: transparency, fair taxation and commitment to the OECD anti-BEPS package. Countries that fail any of these criteria feature on the blacklist, unless they commit to reforms, in which case they are added temporarily to the grey list, or watch list.
Recently, EU parliament parliamentarians themselves questioned the effectiveness and fairness of the system, who said the system did not catch the worst offenders.
The parliament says that the criterion for judging if a country’s tax system is fair or not needs to be widened to include more practices and not only preferential tax rates. All countries need to be treated and screened fairly using the same criteria, the legislators said.
The lack of transparency with which it is drawn up and updated adds to these misgivings. The parliamentarians called for the process of establishing the list to be formalised through a legally binding instrument by the end of 2021 and question whether an informal body such as the Code of Conduct Group is able or suitable to update the blacklist.
Oxfam also has strong views on the EU blacklisting.
Oxfam, in a research paper titled “EU Tax Haven Blacklist Review”, noted that: “For instance, US multinational corporations have reacted to the EU blacklist by starting to change their tax structures and moving their intangible assets (like patents) from traditional tax havens in the Caribbean, like Bermuda and the Cayman Islands, to less known tax havens such as Ireland and Singapore.”
The paper points out that, developing countries are treated unfairly. A number of developing countries have been listed by the EU for failing to comply with international standards which these countries have not had a chance to agree on, and which some of them do not have the capacity to implement.
“Nevertheless, the blacklisting process does not apply to EU member states. Oxfam research confirms that five EU countries – Cyprus, Ireland, Luxembourg, Malta and the Netherlands – fail the EU’s own criteria on fair taxation and would appear on the blacklist if they were not given an automatic exemption.
“The United States have never been listed, despite failing the EU’s transparency criteria. The country has not signed up to the OECD Common Reporting Standard (CRS), a clear requirement for the EU. It has introduced a similar system, the Foreign Account Tax Compliance Act (FATCA), but tax authorities of EU member states do not receive as much information from the US under their bilateral FATCA agreements as they do from countries participating in the multilateral CRS. In October 2019, EU governments screened to US, but found the country to be compliant. This exemption is likely to be confirmed,” argued Oxfam.
Other concerns are related to the transparency of the blacklisting process.
The Code of Conduct Group works behind closed doors, publishing very few documents, and the agendas and minutes of meetings are not available to the public.
Reaction in Namibia
Namibia’s Minister of Finance Ipumbu Shiimi welcomed the country’s removal from the blacklist.
He told the media that, “Namibia worked hard to meet the requirements set by the EU, such as joining the global forum that promotes tax transparency as well as making amendments to the Income Tax Act to remove certain tax incentives. It is a good development for Namibia to be removed from the EU tax haven list as it may encourage more investment into Namibia.”
However, University of Namibia economist Dr Omu Kakujaha-Matundu said the blacklisting was ill-conceived from the start.
He told The Southern Times Business that “Namibia was never a tax haven in the first place. Tax concessions as part of the investment incentives under the Export Processing Zones were construed as a possible avenue for tax evasion. However, the labelling of Namibia as a tax haven carried a negative connotation which could scare off investors. Genuine investors won’t like to be associated with tax havens, so the delisting could serve Namibia well,” he said.