Seychelles added to list of EU’s non-cooperative tax jurisdictions |19 February 2020

Seychelles is one of four countries that have been added to the European Union’s list of non-cooperative tax jurisdictions.

In a press release dated February 18, 2020, the Council of the European Union (EU) wrote that Seychelles, Cayman Islands, Palau and Panama joined the eight jurisdictions that were already listed.

These jurisdictions, according to the same press release, did not implement the tax reforms to which they had committed by the agreed deadline.

Annex II of the conclusions, which covers jurisdictions with pending commitments, reflects the deadline extensions granted to 12 jurisdictions to enable them to pass the necessary reforms to deliver on their commitments. Most of the deadline extensions concern developing countries without a financial centre who have already made meaningful progress in the delivery of their commitments.

Sixteen (16) jurisdictions – Antigua and Barbuda, Armenia, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cabo Verde, Cook Islands, Curaçao, Marshall Islands, Montenegro, Nauru, Niue, Saint Kitts and Nevis, Vietnam – managed to implement all the necessary reforms to comply with EU tax good governance principles ahead of the agreed deadline and are therefore removed from Annex II.

The work on the list of non-cooperative tax jurisdictions is based on a thorough process of assessment, monitoring and dialogue with about 70 third country jurisdictions. Since the start of this exercise, 49 countries have implemented the necessary tax reforms to comply with the EU's criteria. This is an undeniable success. But it is also work in progress and a dynamic process where the EU’s methodology and criteria are constantly reviewed.

The list of non-cooperative tax jurisdictions, which is part of the EU's external strategy for taxation as defined by the Council, is intended to contribute to ongoing efforts to promote tax good governance worldwide.

It was first established in December 2017 and is based on a continuous and dynamic process of:

-           establishing criteria in line with international tax standards;

-           screening countries against these criteria;

-           engaging with countries which do not comply;

-           listing and de-listing countries as they commit or take action to comply;

-           monitoring developments to ensure jurisdictions do not backtrack on previous reforms.

The list includes jurisdictions that have either not engaged in a constructive dialogue with the EU on tax governance or failed to deliver on their commitments to implement reforms to comply with the EU's criteria on time.

Jurisdictions that do not yet comply with all international tax standards but committed to reform are considered cooperative and included in a state of play document (Annex II). The Council's code of conduct group on business taxation monitors that jurisdictions enact the necessary reforms by the agreed deadlines. Once a jurisdiction meets all its commitments, it is removed from Annex II.

Most commitments taken by third country jurisdictions were with a deadline of end 2019, while their enactment in national law was carefully monitored at technical level by the Code of Conduct Group on business taxation until the beginning of this year. The Council adopted the revised EU list of non-cooperative jurisdictions resulting from this exercise and endorsed a revised state of play with respect to pending commitments.

The Council will continue to regularly review and update the list in the coming years, taking into consideration the evolving deadlines for jurisdictions to deliver on their commitments and the evolution of the listing criteria that the EU uses to establish the list.

In parallel, as regards ‘defensive’ measures with regard to the listed jurisdictions, the Council produced a guidance on further coordination of national defensive measures in the tax area towards non-cooperative jurisdictions in December 2019. It invited all member states to apply legislative defensive measure in taxation vis-à-vis the listed jurisdictions as of January 1, 2021, with the aim of encouraging those jurisdictions’ compliance with the Code of Conduct screening criteria on fair taxation and transparency.

Why is Seychelles EU non-cooperative?

Meanwhile, Malika Jivan sent the following contribution to the Seychelles NATION after she herself contacted the newspaper about the news regarding Seychelles being EU non-cooperative.

She wrote:

“They key questions are:

1. Why is Seychelles non-cooperative?

2. What are the implications of being EU non-cooperative?

3. Why was Seychelles blacklisted by France?

4.   What must Seychelles do to get off the non-cooperative list?

The main reason that Seychelles was non-cooperative was due to our tax laws.

Seychelles has had a territorial tax system for the last 40 years. What this means is only income earned in Seychelles is taxed in Seychelles.

An amendment to the business tax law saw a change in definition making it worldwide i.e. any income earned worldwide by a Seychelles tax payer would be taxed in Seychelles.

This was never practiced by either the tax payer or the Seychelles revenue authority and they continued to tax based on the territorial system.

To correct this anomaly, the tax law was amended to tax on a source base as we have been doing for the last 40 years.

The EU raised concerns over this amendment and possible non double taxation especially with regards to income streams like dividend, interest and royalty also known as passive incomes. They also wanted to align certain definitions.

In September last year, they issued a guidance note which was to be addressed by December highlighting these issues.

Seychelles is a sovereign country and has a detailed process for amendment of laws – analysis, concept note / white paper, impact assessment, consultation, draft legislation consultation, finalisation, submission to Parliament and Presidential approval.

Some of the changes would result in a R100 million tax loss to the Seychelles Revenue Commission.

They also wanted all local companies to have a local office, presence and requisite staff even if holding property or cash in the bank.

Therefore, for the first time in mid-December Seychelles set up a committee comprising the government, private sector representatives and international consultants to address these issues.

The committee is ongoing – however given the timeline and process they were unable to address the issues in the given time frame.

Other issues of concern were bank accounts for every Seychelles company.

This is a class catch 22 situation. The banks don’t want to open bank accounts for local companies doing business internationally due to risk.

At the same time, the EU wants all banking information to be available locally.

This is one of the prime reasons for the French blacklisting – the French required very detailed information similar to that of a very detailed tax audit by the SRC – contracts, bank statements, etc.

Some of this information was available but not all similar to all audits. Normally, should you fail to give the SRC information they will estimate the taxes due based on information provided and assess.

However, the French found it unacceptable and blacklisted Seychelles.

What are the implications of being EU non-cooperative?

The impact of being EU non-cooperative is felt by the banking sector. Banks work on a correspondent banking relationship to transfer funds.

With the loss of correspondent banking relationships international transfers become either more expensive or more difficult for major currencies.

They can immobilise a country as payments for basic commodities, petrol, trading, etc become difficult.

Some countries may be forced to look at alternate means like crypto currencies to survive.

What should Seychelles continue to do?

Satisfying EU, OECD and FATF requirements is a moving milestone. These bodies are continuously coming out with requirements that sovereign nations need to bring to their tax systems and regulatory framework.

Seychelles needs to be ahead of the curve and set up a permanent committee with international expertise, private and public sector. The financial services industry has been asking for this since 2014.

Right now the immediate goal is to try and sort out the immediate requirements.

However, it will only be a matter of time before new milestones and benchmarks are created!”

Press release from the Council of the European Union and Malika Jivan