Photograph — prntr.com

The European Union (EU) has moved Seychelles from its grey list of tax havens to its blacklist. The African nation was placed on the list along with two Oceania countries of the Cayman Islands and Palau and Panama, a Central American country while more grace period was given to Turkey

The verdict was published yesterday, 18th of February in a document titled “Evolution of the EU list of tax havens.” The list, also known as the EU list of Non-cooperative Tax Jurisdictions, is an instrument that the bloc’s member states employ to fight external risks of tax abuse and unfair tax competition.

Basically a tax haven is an offshore country that offers foreign individuals and businesses little or no tax liability in a politically and economically static environment. This has a negative impact on people in countries where the taxes should have been paid to, especially developing nations, and widens the gap between the rich and the poor. 

According to a report by the International Monetary Fund, tax havens collectively cost governments between $500 billion and $600 billion a year in lost corporate tax revenue through legal and not-so-legal means. Of that lost revenue, low-income economies account for about $200 billion, a larger hit as a percentage of GDP than advanced economies, which is even more than the $150 billion or more they receive each year in foreign aid. The report also states that American Fortune 500 companies alone held an estimated $2.6 trillion offshore in 2017, but a small portion of it has been repatriated following U.S. tax reforms two years ago.

In 2017, the EU introduced the tax haven list in response to tax avoidance schemes adopted by firms and wealthy individuals in its member countries. But last year, it expanded the blacklist to include tax havens operating outside Europe. The goal of the list is to create a stronger deterrent for countries that consistently refuse to play fair on tax matters. 

The implications of the EU’s blacklist on Seychelles are numerous. There is bound to be an impact on the inbound investment in the country as investors and allies of the bloc would become reluctant to trade there or use its structures for businesses purposes. This is because the African nation will now be faced with numerous legislative tax measures including increased monitoring and audits, non-deductibility of costs, controlled foreign companies’ rules, special documentation requirements, increased withholding tax, anti-abuse provisions and other defensive mechanisms in EU member states.

Seychelles is not the first African country to be blacklisted by the EU. Mauritius was once blacklisted as well. But in October 2019, the EU removed the African Island country from its blacklist alongside the United Arab Emirates (UAE) and Switzerland.

The Republic of Seychelles is an archipelago (among 115 Islands) country in the Indian Ocean. It has developed from a largely agricultural society to a market-based diversified economy, with agriculture being supplanted by rapidly rising service and public sectors as well as tourism. As of 2018, it had a population of 97,096 people and a GDP of $1.563 billion in 2019.

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