UAE included in EU list of uncooperative jurisdictions for tax purposes - EY
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13 December 2017
Global Tax Alert
UAE included in EU
list of uncooperative
jurisdictions for tax
purposes
Executive summary
EY Global Tax Alert Library On 5 December 2017, the Council of the European Union1 (the Council or
Access both online and pdf versions ECOFIN) published a listing of “uncooperative jurisdictions for tax purposes” (the
of all EY Global Tax Alerts. listing), comprising 17 jurisdictions which were deemed to have failed to meet
relevant criteria established by the European Commission (the Commission).2
Copy into your web browser: The listing was part of the Council conclusions adopted on the same date, which
www.ey.com/taxalerts included several annexes.
The identified jurisdictions, including the United Arab Emirates (UAE), are
considered to have not met the Commission’s criteria involving (1) tax
transparency, (2) fair taxation, and (3) implementation of the minimum anti-Base
Erosion and Profit Shifting (BEPS) measures.
The Council conclusions state that the UAE does not apply the BEPS minimum
standards and did not commit to addressing these issues by 31 December 2018,
which is the third criterion. Moreover, the UAE’s commitment under criterion 1
on tax transparency will continue to be monitored for implementation.
For the jurisdictions included in the listing, European Union (EU) Member States
could consider applying one or more defensive measures, including both taxation
measures and measures outside the field of taxation, aimed at preventing
the erosion of their tax bases against the listed uncooperative jurisdictions.
Businesses should be aware of other measures that may be introduced later.2 Global Tax Alert
Defensive measures in the tax area include both administrative Tunisia and the UAE. As noted, these jurisdictions are
and legislative measures including: considered to have not met the relevant criteria established
• EU Member States, to ensure coordinated action, should by the Commission focused on three main categories: (1) tax
apply at least one of the following administrative tax transparency, (2) fair taxation, and (3) implementation of the
measures: (i) reinforced monitoring of certain transactions; minimum anti-BEPS measures.
(ii) increased audit risks for taxpayers benefiting from Annex II mentions 47 jurisdictions3 that have made
the regimes at stake; and (iii) increased audit risks for commitments to solve outstanding issues within the agreed
taxpayers using structures or arrangements involving deadline (December 2018). At this stage, they were not
these jurisdictions. placed on the list of uncooperative jurisdictions for tax
• Additional defensive measures of a legislative nature could purposes.
be applied by the EU Member States. These are: (i) non-
The listing is a result of the Commission’s work relating to
deductibility of costs; (ii) Controlled Foreign Company
the ATAD package aimed at promoting good governance
(CFC) rules; (iii) withholding tax measures; (iv) limitation of
worldwide to maximize efforts to prevent tax fraud and tax
participation exemption; (v) switch-over rule; (vi) reversal
evasion. As part of the ATAD package, the Commission
of the burden of proof; (vii) special documentation
published and presented a communication titled External
requirements; and (viii) mandatory disclosure by tax
Strategy for Effective Taxation and part of this strategy is
intermediaries of specific tax schemes with respect to
the establishment of a list of third countries that do not
cross-border arrangements.
respect the tax good governance standards, and coordinated
• EU Member States could also consider using the listing defensive measures. Work on this specific listing began in
as a tool to facilitate the operation of relevant anti-abuse July 2016 with the Council’s working group responsible for
provisions, e.g., CFC rules of the Anti-Tax Avoidance Directive implementing an EU Code of Conduct on Business Taxation
(ATAD) – Council Directive (EU) 2016/1164 of 12 July (the Code of Conduct Group).
2016. The ATAD should be transposed in EU Member States’
national laws no later than 31 December 2018 and should The External Strategy for listing uncooperative jurisdictions is
generally take effect as of 1 January 2019. based on three steps: scoreboard/pre-selection, screening and
listing. On 8 November 2016, subsequent to the scoreboard/
The conclusions also refer to counter-measures in the non- pre-selection step, ECOFIN agreed on the criteria and the
tax area, including the non-award of the European Fund for process for the establishment of an EU list of uncooperative
Sustainable Development (EFSD) fund, EFSD Guarantee jurisdictions. The countries selected for screening based on
Funds or EFSD Guarantee. the scoreboard results will be assessed cumulatively under
The listing is to be reviewed and updated at least once the following three criteria:
per year depending on new commitments made and the • Criterion 1: Tax transparency
implementation of such commitments. A listed jurisdiction
such as the UAE may be de-listed once it is considered to have Under the first criterion of the screening process, jurisdictions
sufficiently addressed the concern(s) raised by the Council. will be assessed whether they have committed to and started
the legislative process to implement the OECD Automatic
The potential impact of the UAE inclusion in the listing is Exchange of Information (AEOI) standard, with first exchanges
summarized below. in 2018 (Criterion 1.1). They also will be assessed on whether
they have a peer-review rating of at least “largely compliant”
Detailed discussion to the OECD Exchange of Information upon Request (EOIR)
standard, with due regard to the fast track procedure
Background (Criterion 1.2).4 And finally, they will be assessed on whether
On 5 December 2017, the published Council conclusions they have ratified, have agreed to ratify, are in the process
included the UAE in the listing. Annex I of this document of ratifying or have committed to the entry into force of the
sets out the listing comprised of 17 jurisdictions, namely: Multilateral Convention on Mutual Administrative Assistance
American Samoa, Bahrain; Barbados; Grenada; Guam; Korea in Tax Matters (MAC) (Criterion 1.3). As an alternative to this
(Republic of); Macau; Marshall Islands; Mongolia; Namibia; last criterion, a country could have a network of exchange
Palau; Panama; Saint Lucia; Samoa; Trinidad and Tobago; agreements covering all EU Member States.Global Tax Alert 3
• Criterion 2: Fair Taxation result in the removal of the UAE from the listing. In addition,
Pursuant to this criterion, the jurisdiction should have on the specific concern raised by the EU, the UAE commits
no preferential tax measures that could be regarded as to finalizing implementation of the BEPS Minimum Standards
harmful (Criterion 2.1) and should not facilitate offshore by October 2018 (including ratification by March 2019) to
structures or arrangements aimed at attracting profits give enough time for ratification by the seven Emirates.
which do not reflect real economic activity in the jurisdiction Potential tax and non-tax implications for the UAE
(Criterion 2.2).
As part of the defensive measures in non-tax area, in the
• Criterion 3: Anti-BEPS measures context of the European Fund for Sustainable Development
On the basis of this criterion, jurisdictions should commit by (EFSD), the European Fund for Strategic Investment (EFSI)
the end of 2017, to the agreed OECD anti-BEPS minimum and the External Lending Mandate (ELM), if applicable,
standards and their consistent implementation (Criterion 3). funds from these instruments cannot be routed through
the UAE. However, it will still be possible to make a direct
The four BEPS minimum standards are: (i) countering investment from the EU into the listed jurisdictions (i.e.,
harmful tax practices (Action 5); (ii) preventing treaty abuse funding for projects on the ground) to preserve development
(Action 6); (iii) imposing the Country-by-Country (CbC) and sustainability objectives. (http://europa.eu/rapid/press-
reporting requirement (Action 13); and (iv) improving cross- release_MEMO-17-5122_en.htm)
border dispute resolution mechanism (Action 14).
Considering the administrative defensive measures in the tax
According to the Council conclusions, the listing shall be area, businesses involved with the listed jurisdictions should
revised at least once a year. Subsequent to the publication of be aware of reinforced monitoring of certain transactions
the list, the Council will monitor the implementation of the and increased audit risks going forward.
commitments made by these jurisdictions, and if warranted,
de-list the jurisdiction that has undertaken to address the Implementation of the legislative defensive measures in the
concern raised by the Council. tax area is left to the competence of the EU Member States
and currently no timeline was provided. However, according
UAE’s inclusion in the listing to the Commission, a more binding and definite approach
to the defensive measures will be developed in 2018. As
The UAE was one of the 17 jurisdictions included in the
such, these defensive measures are not expected to have an
listing. The Council conclusions state that the UAE does not
immediate effect for the UAE for the time being (until further
apply the BEPS minimum standards, and did not commit to
official announcements of the EU Member States as well as
addressing these issues by 31 December 2018. It also noted
further negotiations between the UAE and the EU).
that the Code of Conduct Group will continue to monitor the
UAE’s commitment to comply with Criterion 1.1. (on OECD If the defensive measures are implemented prior to the UAE
AEOI) and 1.3. (on OECD MAC). being taken off the listing, there are several implications
that may arise. For UAE companies with investments in the
The UAE is considered to have made a serious commitment
EU, the potential introduction of additional or more onerous
at a high political level to resolve the outstanding issues in
withholding tax measures should be considered. However, it is
relation to the OECD Criteria 1.1 and 1.3. Nevertheless,
expected that such measures would not override the existing
the UAE has been included on the list of uncooperative
double tax treaties that are in place between the UAE and
jurisdictions for tax purposes due to the fact that it did
25 EU Member States.6 In addition, the non-deductibility of
not commit to apply the BEPS minimum standards by not
cost can also be an issue.
committing to join the Inclusive Framework on BEPS within
the deadline set (Criterion 3). For companies headquartered in the EU with UAE-based
subsidiaries or branches, the possible effect relates to the
UAE’s statement in response to Council conclusions application of CFC rules that could result in the inclusion of
On 7 December 2017, the UAE released an official statement5 non-distributed income of a UAE subsidiary or a Permanent
expressing its surprise and disappointment over its inclusion Establishment in the tax base of its EU parent company.
in the listing. However, the UAE remains fully committed to Another possible impact is the potential limitation on the
international tax standards and has committed to a reform participation exemption on dividends and, or capital gains
process which will be finalized by October 2018 and should derived from the UAE subsidiary. It is expected, however, that4 Global Tax Alert
in case of exclusion from CFC rules, the participation exemption Insofar as the legislative measures are concerned, most of
would be granted to entities with genuine operations and these have also been covered by the BEPS Actions including:
substantive economic activity supported by staff, equipment, limitation of deductibility of interest expense (Action 4), CFC
assets and premises. Lastly, all businesses would need to be rules (Action 3), withholding tax measures (Action 6 on treaty
prepared to increased disclosure, documentation and reporting abuse), limitation of the participation exemption (Action 2 on
obligations that would be required with respect to cross-border hybrid mismatches), and mandatory disclosure of aggressive
arrangements involving listed jurisdictions. tax planning arrangements (Action 12), among others. The
reversal of the burden of proof as well as imposition of special
With respect to UAE companies with operations in the
documentation requirements could be considered as more
United Kingdom (UK), even though the UK will leave the
procedural in nature. The inclusion of a switch-over clause
EU on 29 March 2019, businesses should be aware of the
in the EU ATAD was highly debated and was subsequently
new corporate criminal offense of failing to prevent the
excluded from the final version of the ATAD.
facilitation of tax evasion that came into effect in the UK
on 30 September 2017.
Based on the above, it appears that anti-BEPS measures Implications
have had an effect in the defensive measures developed by Based on the reaction of the UAE, the UAE is expected
the EU, and are therefore not an unexpected consequence. to quickly proceed with addressing the concerns raised
According to the OECD, the anti-BEPS measures are aimed by the Council to be removed from the listing as soon as
to ensure that “profits are taxed where economic activities possible. Apart from the potential application of the above-
generating the profits are performed and where value mentioned defensive measures, the listing of the UAE has
is created.” Prior to the 2015 release of the BEPS Final primarily impacted its reputation. Its inclusion in the list
Reports on the 15 Actions, countries were already taking gives the impression that the UAE is a tax haven, which
action in anticipation of the OECD recommendations, and the UAE has continuously rejected through its extensive
there has been significant BEPS-driven legislative and tax effort in expanding its treaty network and participation in
administration activity around the world since the OECD international tax initiatives and developments.
initially issued its Action Plan on BEPS in July 2013.
Businesses should monitor official statements made by the
In particular, the administrative measures mentioned above EU Member States to determine the potential implications
can be considered as an outcome of the BEPS project on operating structures involving EU jurisdictions.
where transactions and structures are already being strictly
scrutinized to avoid BEPS.Global Tax Alert 5
Endnotes
1. The Council is a body within which government ministers from each EU Member State meet to discuss, amend and adopt
laws, and coordinate policies. The Council exists in ten different configurations, with the Economic and Financial Affairs
Council configuration (ECOFIN) being the configuration that most commonly looks at taxation issues. The ministers
have the authority to commit their governments to the actions agreed on in the meetings. Together with the European
Parliament, the Council is the main decision-making body of the EU.
2. See EY Tax Alert, Council of the European Union publishes list of uncooperative jurisdictions for tax purposes, dated
6 December 2017.
3. Albania, Andorra, Armenia, Aruba, Belize, Bermuda, Bosnia and Herzegovina, Botswana, Cabo Verde, Cayman Islands,
Cook Islands, Curacao, Faroe Islands, Fiji, Former Yugoslav Republic of Macedonia, Greenland, Guernsey, Hong Kong SAR,
Isle of Man, Jamaica, Jersey, Jordan, Labuan Island, Liechtenstein, Malaysia, Maldives, Mauritius, Montenegro, Morocco,
Nauru, New Caledonia, Niue, Oman, Peru, Qatar, Saint Vincent and the Grenadines, San Marino, Serbia, Seychelles,
Swaziland, Switzerland, Taiwan, Thailand, Turkey, Uruguay, Vanuatu and Vietnam.
4. The Global Forum on Transparency and Exchange of information for Tax Purposes adopted a special fast-track procedure
to enable it to evaluate, on a provisions basis, progress made by a jurisdiction in implementing the 2010 EOIR Standard.
5. http://www.cpifinancial.net/news/category/economics/post/43766/uae-government-official-statement-on-eu-list-of-non-
cooperative-tax-jurisdictions; https://www.khaleejtimes.com/business/economy/uae-disappointed-at-inclusion-in-tax-
haven-blacklist-confident-of-swift-removal-in-2018.
6. The tax treaty with Croatia is pending while the UAE currently has no tax treaty with Denmark and Sweden.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Middle East, Abu Dhabi
• Tobias Lintvelt tobias.lintvelt@ae.ey.com
Ernst & Young Middle East, Dubai
• Venice Segarra venice.segarra@ae.ey.com
Ernst & Young Belastingadviseurs LLP, Rotterdam
• Marlies de Ruiter marlies.de.ruiter@nl.ey.com
Ernst & Young LLP, Middle East Desk, Houston
• Gareth Lewis gareth.lewis1@ey.comEY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2017 EYGM Limited. All Rights Reserved. EYG no. 07018-171Gbl 1508-1600216 NY ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com
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