European Union has put Palau back on its blacklist of countries considered as tax havens this February 18, 2020.

During the EuropeanUnion Finance Ministers meeting last week, they added Palau, Seychelles, Panama, and the Cayman Islands to their “naming and shaming list” of countries they deem “non-cooperative jurisdictions for tax purposes.”

Finance Minister ElbuchelSadang, in an interview with Island Times, said that the process the European Union was employing to unilaterally force other countries to comply with its own laws is an “unfair treatment”, a “unilateral imposition of its own standards”.

According to Minister Sadang, Palau has been working to meet EU’s demands which basically require Palau to become a member of Global Forum on Transparency and Exchange of Information for Tax Purposes, Ratify EU’s Convention on Mutual Administrative Assistance in Tax Matters and thirdly, to amend Palau’s tax laws, all by the end of 2019.

Palau gained membership in the Global Forum this January and had opted to execute bilateral agreements on exchange of information with the 28 European members States instead of ratifying the Convention.  According to Director Rhinehart Silas of Revenue and Taxation, they have submitted the bilateral agreements to the EU member states and is awaiting their responses.  In addition, Palau had requested for extension of time as it has already met two of the three requirements demanded. European Union went ahead and blacklisted Palau this month.

According to Director Silas, the European Union sees Palau as “Developing Country of Relevance” and determines that Palau has financial centers.  He said that this was a point of contention with EU that has been brought up many times.  “We have invited them to come to Palau and see for themselves but they have not,” added Silas.

The European Union’s Code of Conduct Group (Business Taxation) which recommended to EU to blacklist these countries, said they have warned the six small international financial centers that their tax laws are “harmful” and must be repealed by the end of 2019.

One of the reasons for the delay according to Finance was the cost implication of these agreements.Minister Sadang said that it costs Palau around $25,000 a year for membership in the Global Forum and if it ratifies the Convention as demanded, it will cost around another $5,000 a year.  In addition, a full-time person has to be hired to do the reporting required by these agreements.   He added that Palau gains minimal benefits from the agreements as it does not have trade with EU and is not a major aid recipient of EU.

In addition, a country like Vietnam was removed from EU list even though it did not ratify the convention or established exchange of information with EU member states and countries like Maldives, Mongolia, and Thailand were given extended dates.

This issue is not only specific to Palau according to Minister Sadang.  “Pacific Island Forum’s leaders wrote a letter to the European Union expressing what they saw as “unfair treatment” by EU.” He added that the Pacific Island Forum Ministers also wrote EU their objections to the blacklisting process EU is imposing on the Pacific Island member countries.

“We want to comply with the requirements but the way they are doing it is unfair,” stated Minister Sadang.

Director Silas said that there is no immediate or near-term implications if we do not comply. “Given what we have done to date, we can expect to be taken of the list by October of 2020.”

The EU blacklisting process is a tool used to address tax evasion and unfair tax policies by having countries comply to certain agreements and standards imposed by EU.  The blacklist process does not apply to EU member countries.

Current list of countries blacklisted by EU are American Samoa, Fiji, Guam, Oman, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu, Palau, Seychelles, Cayman Islands, and Panama. (L.N. Reklai)