Samoan Govt. could lose E.U. funding if tax woes not addressed
The Delegation of the European Union (E.U.) yesterday warned Samoa could lose out on funding if it still exists in the blacklist of “non-cooperative tax jurisdictions”.
Mohammed Nazim-Kasim, the press and information officer (Political, Trade, Press and Information Section) at the Suva-based Delegation of the European Union for the Pacific, said the implications on Samoa could include losing out on European Fund for Sustainable Development (E.F.S.D.), the European Fund for Strategic Investment (E.F.S.I.) and the External Lending Mandate (E.L.M.).
Mr. Nazim-Kasim said the E.U. list is now linked to the E.U. funding following European Commission proposals.
“Funds from these instruments cannot be channeled through entities in listed countries. Only direct investment in these countries (i.e. funding for projects on the ground provided that it does not contribute to tax avoidance including no use of harmful tax regimes, tax evasion or tax fraud) will be allowed, to preserve development and sustainability objectives.
“In addition to the E.U. provisions, member States have agreed on a set of countermeasures, which they can choose to apply against the listed countries.
These include measures such as increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions,” he said, in response to questions from Samoa Observer.
But Samoa’s Ministry of Revenue C.E.O., Matafeo Avalisa Viali Fautua'alii, said she is not at liberty to respond to questions that were sent to her by this newspaper, as the issue also involves the Ministry of Foreign Affairs and Trade, and the Samoa International Finance Authority.
“We are working together to devise an action plan to address the concerns raised by EU,” Matafeo said.
“However, Ministry of Revenue — through its Policy Division — is doing its research on the tax side of things, on how we can address the European Union’s listing criteria on tax transparency and base erosion and profit shifting (B.E.P.S.) minimum standards.”
Explaining how Samoa can address the issue to avoid the consequences of being on the blacklist, Mr. Nazim-Kasim said Samoa should modify the existing "Offshore business regime" to align it with the criteria of the Code of Conduct, or abolish it.
“The Offshore business regime was assessed as harmful by the EU Code of Conduct of Business Taxation and at this stage Samoa has not committed to modify the regime as requested by the COCG,” he said.
“The assessment made is based on the information that Samoa offers offshore business vehicles for international finance activities conducted outside Samoa. It is taken into account that international and registered foreign companies are exempt from payment of all income taxes and from other direct or indirect taxes and stamp duties on their transactions, profits and gains and on any dividends, earnings or interest attribute to or paid upon their shares or securities which are beneficially owned by non-residents or other international companies.
“As the general tax rate in Samoa is 27 per cent a complete exemption from tax for foreign registered companies on income from direct and indirect taxes on profits, gains, dividends and interest attributed to or paid to companies which are beneficially owned by non-residents means that the measure provides for a significantly lower level of taxation. On this basis the measure is considered as potentially harmful.”
He further explained that the assessment is also based on the available information — that the Offshore business regime is applicable only to activities conducted outside Samoa — and to transactions, profits and gains and on any dividends, earnings or interest attribute to or paid upon their shares or securities, which are beneficially owned by non-residents or other international companies.
“Another criterion of the Code of Conduct is that in order not to be harmful a regime must require a real economic activity and substantial economic presence in the jurisdiction.
“This criterion is aimed at ensuring that companies do not establish themselves in a jurisdiction only to avoid tax but that they should carry out a real activity and be part of local economic life.
“It has been found that there is no express requirement for real economic activity or substantial economic presence and that companies could establish a company and benefit from the exemption from tax without any actual presence in Samoa.”
Mr. Nazim-Kasim said the E.U. is open for dialogue with the Samoan authorities finding a way forward.
“We understand that Samoa is working on draft legislation that is intended to remedy the issues identified by the EU.”
He added that the EU listing process is intended to prompt change and it creates a positive incentive for international partners to improve their tax systems, where there are “weaknesses in their transparency and fair tax standards”.
“The EU encourages the jurisdictions to address the identified tax good governance deficiencies and engage positively with the EU to resolve the issues,” he added.