THIS week, the European Union named Caribbean territories Saint Lucia, Barbados, Grenada and Trinidad and Tobago among seventeen nations blacklisted as tax havens. The other nations on that list are American Samoa, Bahrain, Guam, South Korea, Macau, Marshall Islands, The Mongolia, Namibia, Palau, Panama, Samoa, Tunisia, and United Arab Emirates.
According to the report released on Tuesday, “Saint Lucia has harmful preferential tax regimes, does not apply the BEPS minimum standards and did not clearly commit to addressing these issues by 31 December 2018.”
BEPS is the acronym for base erosion and profit shifting, and 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 to no economic activity. In essence, it is a situation where people and businesses move profits to where they are taxed at lower rates and expenses to where they are relieved at higher rates.
The criteria used by the EU in determining the findings include measuring the transparency of a country’s tax regime, tax rates and whether the tax system encourages multinationals to unfairly shift profits to low tax regimes to avoid higher duties in other jurisdictions.
As a result, Saint Lucia – like the other sixteen countries cited – will undoubtedly face an uphill battle in direct and subtle ways, including benefitting from foreign assistance in crucial areas, such as development aid.
However, many of the countries on the black list appear to be minnows compared to other jurisdictions long known to be tax havens, such as Cayman Islands, Bermuda, and the Virgin Islands, who were placed comfortably on the ‘grey list’, suggesting that their status is not as grave as those on the black list.
Ironically, while St. Vincent and the Grenadines Cayman Islands, the United States and Cyprus were named as jurisdictions where Paul Manafort, the former campaign manager for U.S. President Donald Trump, is alleged to have laundered millions of dollars, did not make the black list.
Thus far, Saint Lucian officials have not yet responded to the news of the black list. But such news is certainly not the kind that one would want to entertain presently, especially as unemployment declined by nearly 4 per cent in the last quarter and a number of tourism and other developments are set to add some economic speed to an economy still relatively stagnant.
Evidently, the ill-effects of the Panama Papers will continue to hurt many economies as more information comes to light. However, government needs to focus on strengthening its tax regimes albeit not at the expense of rendering Saint Lucia uncompetitive on the global marketplace where hounds guard the sheep.
In his 2017/2018 Budget Address delivered last May, Prime Minister Allen Chastanet addressed the matter of FATCA – Foreign Account Tax Compliant Act – briefly, saying that Saint Lucia had signed onto the Inter-Governmental Agreement Model 1A with the United States on November 19, 2015. That agreement allows for automatic two-way exchange of information between the United States and Saint Lucia in a direct effort to stop tax evasion and enhance financial oversight.
Aside from FATCA, he said Saint Lucia is also a party to 32 active Exchange of Information Agreements with various countries, which is spearheaded by the Global Forum on Transparency and Exchange of Information for tax Purposes. In light of the recent blacklisting by the EU, one would hope Saint Lucia does not make other unfavourable lists while working assiduously towards getting off the recent one.