How EU tax crackdown will affect UAE, Bahrain and Tunisia

The UAE is among the countries targeted in an EU tax crackdown. (Shutterstock)

LONDON: Arab News has established how sanctions will affect Bahrain, the UAE and Tunisia as part of an EU crackdown on tax avoidance.
The main weapon will be funding restrictions to be imposed by the European Fund for Sustainable Development (EFSD), the European Fund for Strategic Investment (EFSI) and the External Lending Mandate (ELM).
Direct funding for projects on the ground in those countries — already subject to checks before loans are released – will not be affected.
The real targets are entities through which funds are channeled to other projects overseas, in places such as Africa and India, a Brussels source told Arab News.
These entities would include banks, private equity funds, asset managers and even government-linked bodies.
The three countries are among 17 jurisdictions to be punished following an EU probe.
A statement said: “The EU list should have a real impact on the countries concerned, thanks to new legislative measures.”
Brussels said new EU proposals would also, in time, impose stricter reporting requirements for multinationals with activities in “listed” states. Additionally, a tax scheme routed through an EU listed country would automatically be reported to the tax authorities, the statement said.
The European Commission is examining legislation in other policy areas, “to see where further consequences for listed countries can be introduced.”
Individual EU states have agreed they could also opt to trigger a number of other measures such as increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions.
According to Brussels: “The Commission will support member states’ work to develop a more binding and definitive approach to sanctions for the EU list in 2018.” 
As well as the UAE, Bahrain and Tunisia, other countries on the so-called tax haven blacklist are: American Samoa, Barbados, Grenada, Guam, South Korea, Macau, the Marshall Islands, Mongolia, Namibia, Palau, Panama, St. Lucia, Samoa, and Trinidad & Tobago.
A “watchlist” of 47 countries promising to change their tax rules to meet EU standards has also been issued.
This “grey list” includes several with UK links, including Hong Kong, Jersey, Bermuda and the Cayman Islands, as well as Switzerland and Turkey.
The lists follow the leaking of the Panama Papers and the Paradise Papers, revealing how companies and individuals hid their wealth from tax authorities around the world in offshore accounts.
To determine whether a country is a “non-cooperative jurisdiction,” the EU index measures the transparency of its tax regime, tax rates and whether the tax system encourages multinationals to unfairly shift profits to low tax regimes to avoid higher duties in other states. In particular, these include tax systems that offer incentives such as percent corporate tax to foreign companies.
UK-based tax campaigners have said EU countries will be encouraged to disallow payments made to blacklisted countries for tax purposes, or to charge withholding taxes on interest payments to them.
The EU campaign is designed to force countries to take measures to reform their tax systems as it seeks to clampdown on corporate tax avoidance around the world.
Current EU plans are to reconsider the lists annually. Developed grey-list countries have one year to deliver on their reform promises, while developing nations have two years, said the EU.