Friday 22 February, 2019

EU writes to PM on replacing St Lucia’s ‘harmful’ new tax regime

Prime Minister Allen Chastanet received a letter dated February 1, 2019, from the European Union (EU), cautioning the government to replace what the EU deems as a ‘harmful’ tax regime that benefits foreigners.

Barbados, Belize, Curaçao, Mauritius and Seychelles also received similar letters.

The letter begins by thanking the prime minister for complying with amending or abolishing the tax regimes the EU had considered harmful in December 2017 but notes that a new preferential tax measure, exemption of foreign income [Income Tax Act, as amended by Act N°12 of 11 December 2018 (sections 8, 10A and 76)], has been reviewed by their Code of Conduct Group and was found “to have similar harmful effects as the harmful regimes that Saint Lucia had abolished at the end of 2018.”

The letter states: “Against this background, we would welcome to receive a commitment at a high political level that Saint Lucia will amend or abolish this regime by 31 December 2019, without any grandfathering mechanism. In this case, the Code of Conduct Group will not recommend to the Council of the EU to include Saint Lucia in the EU list of non-cooperative jurisdictions for tax purposes, as long as no other criteria have been failed.”

The letter includes an annex which says in part, “ Explanation: Criterion 1 – Targeting non-residents “whether advantages are accorded only to non-residents or in respect of transactions carried out with non-residents” and Criterion 2 – Ring-fencing: “whether advantages are ring-fenced from the domestic market, so they do not affect the national tax base” Criteria 1a and 2a: The measures excepting certain income from tax relate to foreign income and profit distributions related to that foreign income only. Domestic income and domestic profit distributions are taxed at a higher rate (30%). This is a clear case of ring-fencing under criterion 1 and 2 of the Code of Conduct, as it is limited to transactions carried out with non-residents.”

It concludes with, “Overall assessment: The regime is overall harmful as it is ring-fenced to transactions carried out with non-residents.”

St Lucia was among 17 countries blacklisted by the EU as tax havens in December 2017. St Lucia was removed from the blacklist in March 2018.

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