EU warns St Lucia over its tax regime

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By Melanius Alphonse
Caribbean News Now Associate Managing Editor
melanius@caribbeannewsnow.com

CASTRIES, Saint Lucia — The European Commission tax haven blacklisting of Saint Lucia in December 2017, and subsequent removal in January 2018 were based on committing to comply with the European Union (EU) code of conduct tax (base erosion and profit shifting minimum standard) and good governance criteria. This included administrative defensive measures that reinforced transaction monitoring, increased audit risk for taxpayers benefiting from the regime, or increased audit risk for taxpayers that use arrangements involving the jurisdiction.

However, EU letters dated February 1, to governments of Barbados, Belize, Curaçao, Mauritius, Seychelles, and Saint Lucia, warned that recent reforms would not be sufficient to keep their countries off the 2017 EU blacklist. In particular, Saint Lucia’s version of an exemption for foreign income is a clear case of ring-fencing. The letter asks for a commitment to end the harmful practices identified and comply with the blacklist criteria by the end of 2019, with no grandfathering provisions.

All of the countries mentioned are required to commit to abolish or amend their regimes in line with EU standards. This includes commitment to transparency through automatic information exchange and administrative assistance agreements and compliance with the four minimum standards of the OECD base erosion and profit-shifting project; and must also meet “fair taxation” standards by not offering harmful preferential regimes or facilitating structures that attract profit without real economic activity, to stay of the blacklist.

“The Code of Conduct states that antiabuse provisions or countermeasures contained in tax laws and double taxation conventions play a fundamental role in counteracting tax avoidance and evasion; – the existence of appropriate antiabuse rules. Such measures would include [controlled foreign corporation] rules or a switchover clause, in line with the agreed Code Guidance and previous assessments.”

In the budget address for the financial year 2017/18, the International Business Companies Act was amended to allow for the headquarters of regional companies to be located in Saint Lucia. [Employees tax exemptions ranging from zero to 1 percent of their revenue, a glaring difference to local companies which have to pay up to 30 percent.]

In an interview with business network CNBC, Prime Minister Allen Chastanet said:

“Can we not get an incentive, and that’s what we’re in discussions with the US about that if US companies invest into the Caribbean that those investments in our books are always tax-free that the US allow those funds to be repatriated back into the US tax-free, only on those investments. So, it accomplishes getting the funds back into the United States of America. It creates an avenue for the private sector to participate in this growth and brings a lot of money to the table.”

At the time, concerns were raised for whose benefit is Chastanet serving and “corporate inversion” — a maneuver in which a US company moves its headquarters overseas to reduce its tax burden. Corporate inversions often cost jobs and tax revenue, and the symbolism that government acts of kindness to foreign corporations supersede regional and domestic companies and its citizenry.

A social media comment summarizes the magnitude of the threat Saint Lucia faces.

“This is what politicians do best. They are the best artists in the world. These people paint the best picture of a bad situation. Where are the good paying jobs in Saint Lucia? Finding a reasonably paying job presently is like looking for a lost diamond ring in the entire Pacific Ocean. Are these politicians living in fantasy land? They need to get a good dose of reality. The unemployment figures are frighteningly unacceptable, especially among the youth population. No wonder so many young people are choosing a criminal career because gainful employment seems hopelessly impossible. Living in Saint Lucia for the ordinary man feels like being on a plane, 5,000ft up high, then all the engines start to severely malfunction but the pilot stating everything is perfect.”

The EU Code of Conduct Group at its meeting of January 30, 2019, must have considered these to have harmful effects, in stating that, “the Code of Conduct Group will not recommend to the Council of the EU to include Saint Lucia in the EU list of noncooperative jurisdictions for tax purposes as long as no other criteria have been failed.”

“Finally, the Code of Conduct Group would like to inform Saint Lucia that no further replacement with measures of similar effects or delays will not be accepted when assessing at the beginning of 2020.”

At a national public meeting of the Saint Lucia Labour Party (SLP) on the Castries Market Steps, February 7, opposition Member of Parliament for Laborie, Alva Baptiste said: “…the real threat to our country is the continued presence of Chastanet and his version of flambeau United Workers Party (UWP) in the corridors of power.”

“An incompetent administration with absolutely no integrity… has dragged our country to the lowest point of discredit… for the past three years has been actively undermining the development of this country. They are determined to destroy the heart and soul of Saint Lucia,” Baptiste continued.

Unfazed by the EU and Saint Lucia’s real concerns, Chastanet expressed satisfaction with the country’s unemployment rate:

“Unemployment for the fourth quarter of 2018 was “7 percentage points less than that of 2017, dropping from 23.2 percent to 16.2 percent, reduced by 2.2 percent, from 38.5 percent to 36.2 percent. We are on a mission to ensure that more Saint Lucians can benefit from our record-breaking performances in tourism. The year 2019 is focused on revenue generation within the tourism sector.”

Meanwhile, the EU and governments of the Caribbean region are at variance on philosophies of good governance, the relevance of statistics and economic policy at the recently concluded 30th inter-sessional meeting of the conference of heads of government of the Caribbean Community (CARICOM).

Heads of government recognized “that the blacklisting of CARICOM member states by the European Union (EU) has wrought considerable reputational damage to the Community” and “viewed the EU’s approach to “tax good governance” as inappropriate.”

The argument is such that “the appropriate forum to deal with these matters is the OECD forum for harmful tax practices. This is inclusive in allowing other member States to be present and to be consulted, and that “it is an infringement of their sovereignty, coercive and harmful to the future of a key economic sector in CARICOM for the EU to demand these political commitments. Also, they have not provided any empirical evidence of instances of tax evasion.

“The Community’s strategy against blacklisting will be multidimensional and targeted to both the immediate protection of member states’ sovereignty and their future relations with Europe” and “have accordingly requested the EU to cease the blacklisting of CARICOM states which have already made commitments to reform their tax structures in good faith.”

The European Commission has now added ten more countries to its blacklist of what it considers to be tax havens: Bermuda, Aruba, Barbados, Belize, Dominica, Fiji, Marshall Islands, Oman, United Arab Emirates, and Vanuatu.

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