The global Islamic finance centre credentials of the UAE and Bahrain took a hit as EU finance ministers added them to a list of “blacklist” tax havens, which could mean they lose access to EU funds and face other sanctions.
EU finance ministers have listed 17 countries for failing to meet agreed tax good governance standards.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “The adoption of the first ever EU blacklist of tax havens marks a key victory for transparency and fairness. But the process does not stop here. We must intensify the pressure on listed countries to change their ways. Blacklisted jurisdictions must face consequences in the form of dissuasive sanctions, while those that have made commitments must follow up on them quickly and credibly. There must be no naivety: promises must be turned into actions. No one must get a free pass.”
The action is aimed at countering disclosures about the behaviour of companies and individuals – the most recent in the release of the so-called Paradise Papers. EU states launched a process in February to list tax havens in an attempt to discourage setting up shell structures abroad.
In the case of UAE, the EU stated: The United Arab Emirates does not apply the base erosion and profit shifting (BEPS) minimum standards and did not commit to addressing these issues by 31 December 2018.
BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.
For Bahrain the EU stated: Bahrain does not cover all EU Member States for the purpose of automatic exchange of information, has not signed and ratified the OECD Multilateral Convention on Mutual Administrative Assistance as amended, facilitates offshore structures and arrangements aimed at attracting profits without real economic substance, does not apply the BEPS minimum standards and did not commit to addressing these issues by 31 December 2018.