Botswana has failed the European Union (EU) tax standards but will not be added to the blacklist of tax havens because government has agreed to change its ways.
The EU’s ECOFIN Council released on December 5 its long-awaited blacklist of tax havens and provided for sanctions on these governments. The report shows that Botswana failed both fair taxation and transparency standards, but made a commitment to address its delinquency.
The EU has heeded Botswana’s plea that it should not be blacklisted because it is working hard to ensure compliance with international tax standards. France earlier this year blacklisted Botswana as a tax haven accusing Gaborone of failing to help investigate foreign aid fraud, banning the use of their banks to help distribute development funds. Minister Vincent Seretse however hit back saying “Botswana strongly contests the blacklisting in view of her cooperation with the Global Forum on Transparency Exchange of Information or Tax Purposes.” He said Botswana has in all respects been transparent and has continually responded to the Global Forum fair taxation requirements with the objective of being transparent and compliant in the exchange of tax information at all levels. “ Our commitment in response to transparency and in exchange of information has been evidenced by various engagements of our treaty partners to renegotiate our existing Tax Treaties or Protocols to amend existing Double Taxation Avoidance Agreements (DTAA) in place (that were considered non-compliant),” said Seretse. He reminded France that the exercise of reviewing “our domestic tax and banking laws to meet international standards including the OECD requirements started as far back as 2010.” Seretse said, Botswana has worked on the deficiencies (including amending DTAAs) that she has with other countries that were not compliant. “We then requested for a Supplementary Report from the Global forum and the Report was discussed at the Global Forum Peer Review Group (PRG) meeting held in Malta in March 2014 where we succeeded and proceeded to Phase 2 Review. It should be noted that the PRG was chaired by a French national,” said Seretse. It is therefore, he argued, comes as a great surprise that notwithstanding “all our efforts we find ourselves blacklisted.” “This appears to go against the spirit of cooperation that we have nurtured over the years. We remain steadfast that transparency assessment on tax matters be carried out strictly on the basis of the OECD standards,” said the minister.
The latest EU blacklist list includes 17 countries: American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macau, the Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia, and the United Arab Emirates.
The Council concluded that these countries are non-cooperative jurisdictions for tax purposes because they did not meet Council criteria established in November 2016 and did not provide a sufficient commitment to meet these criteria in the future. These EU standards concern tax transparency and fair taxation and require implementation of the minimum standards set out in the OECD/G20 base erosion profit shifting (BEPS) plan agreements. This measure shows the effort taken by the EU in recent years to tackle tax avoidance and evasion around the world.
The EU agreed to not add countries to its blacklist of tax havens even if the country failed to live up to EU tax standards if the country made a sufficient commitment to change its ways. The EU said the following countries failed tax transparency standards but made sufficient commitments to improve:
Armenia, Bosnia & Herzegovina, Botswana, Cape Verde, Hong Kong SAR, Cura├ºao, Fiji, Former Yugoslav Republic of Macedonia, Jamaica, Georgia, Maldives, Montenegro , Morocco, New Caledonia, Oman, Peru, Qatar, Serbia, Swaziland, Taiwan, Thailand, Turkey, and Vietnam.
Some countries were not listed because they pledged to improve in the area of fair taxation. The following jurisdictions committed to amend or eliminate the existence of harmful tax regimes:
Andorra, Armenia, Aruba, Belize, Botswana, Cape Verde, Cook Islands, Cura├ºao, Fiji, Hong Kong SAR, Jordan, Labuan Island, Liechtenstein, Malaysia, Maldives, Mauritius, Morocco, Niue, St Vincent & Grenadines, San Marino, Seychelles, Switzerland, Taiwan, Thailand, Turkey, Uruguay, and Vietnam.
The ECOFIN Council also provided some countermeasures to encourage countries placed on the blacklist of tax havens to change their behavior.
A measure at the EU level will limit access for listed jurisdictions to the European Fund for Sustainable Development. The Council said the blacklist could be incorporated into other EU legislative acts in the non-tax area in the future to reinforce the defensive measures of the Council conclusions
The Council said that Member States should adopt at least one of the following measures: reinforced monitoring of certain transactions, increased audit risks for taxpayers benefiting from the regimes at stake, or increased audit risks for taxpayers that use structures or arrangements involving these jurisdictions
The Council said countries may adopt further measures at their discretion, like non-deductibility of costs, controlled foreign company (CFC) rules, withholding tax measures, limitations on the participation exemption, a switch-over rule, a reversal of the burden of proof, special documentation requirements, or provisions requiring mandatory disclosure by tax intermediaries of specific tax schemes with respect to cross-border arrangements.