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(SNO) — The European Union (EU) has written to the Allen Chastanet-led government that it should abolish a tax preferential regime for foreign companies working here, by December 31, 2019, or the island could be placed on the EU’s list of non-cooperative jurisdictions.
The regime, which gives foreign companies and their employees certain tax exemptions, was described as harmful by the EU.
In a letter to Chastanet, dated February 1, the EU thanked Saint Lucia for its cooperation so far on tax good governance standards.
The letter pointed to measures enacted by the island to abolish, by the end of 2018, a preferential tax measure that the Council of European Union had considered harmful in December 2017.
However, it pointed out that the EU’s Code of Conduct Group has identified the introduction by Saint Lucia of a new preferential tax measure for foreign income which it said would have the same harmful effect.
The government in 2017 had amended the International Business Act, giving foreign companies and their employees tax exemptions ranging from zero to to one percent of their income, in stark contrast to local businesses which have to pay up to 30 percent.
“This measure was assessed by the Code of Conduct Group at its meeting of January 30, 2019 and deemed to have similar harmful effects as the harmful regimes that Saint Lucia has abolished at the end of 2018,” the letter stated.
It went on to say that the EU would welcome a commitment “at a high political level that Saint Lucia will amend or abolish this regime by the end of 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 reads.
It said that in order to demonstrate that Saint Lucia has made meaningful commitments at the highest political levels to address the deficiencies identified the by EU in the new tax regime, the EU seeks consent to publish the commitment letter on the Council’s website.
“This will ensure the transparency of the process,” the letter stated.
The EU made it clear that replacements with similar effects, as the one that is now in place, or the one abolished, will not be accepted.
“Finally the Code of Conduct Group would like to inform Saint Lucia that no further replacement with measures of similar effects or delays will not be accepted when assessing at the beginning of 2020,” the letter said.
Last year, Saint Lucia was among a number of Caribbean countries with Citizenship by Investment Programs that was blacklisted by the Organisation for Economic Cooperation and Development (OECD).
The OECD said such programs threaten international efforts to combat tax evasion.
A report by the OECD stated that a second citizenship can be potentially misused to hide assets abroad.