Although Liechtenstein is not part of the European Union, good relationships to the EU are key to the nation’s economic success. Therefore, Liechtenstein has reformed their tax systems to fully comply with EU tax good governance principles and has now been removed from the EU “grey list” of tax havens – a good sign for the Blockchain community.
In the aftermath of the Panama Papers scandal in 2016, EU politicians have started to push the world’s tax havens to reform their tax and regulatory systems. To call out potential offenders, Brussels came up with two lists – the “black list” and the “grey list”.
The black list included 17 nations which did not adhere to the EU rules of fair taxation and were therefore considered harmful to international competition. Currently on the list are American Samoa, Guam, Namibia, Samoa, Trinidad and Tobago and the United States Virgin Islands.
The grey list (or “watch list”) included 60 nations whose tax systems do not comply with EU standards, but have made a commitment to the EU to implement the requested changes in 2018. Liechtenstein was placed on the initial grey list in 2017.
The EU tries to enforce an automatic exchange of information between countries, which is realized either by signing the Multilateral Competent Authority Agreement or through bilateral agreements between the EU and the respective country. Furthermore, the EU asks trade partners to join the Global Forum on Transparency and Exchange of Information for Tax Purposes as well as sign the OECD Multilateral Convention on Mutual Administrative Assistance.
2. Fair Taxation
The EU considers certain tax regimes as harmful, for example tax regimes that facilitate offshore structures attracting profits without any real economic activity. Such shell companies are mainly created to avoid taxes or hide unlawful activities, says the EU.
3. Anti-BEPS Measures
“BEPS” stands for “base erosion and profit shifting” – tax planning strategies that exploit gaps in international tax rules to shift profits to low-tax locations. The EU wants its trade partners to at least implement the BEPS minimum standards which were agreed by the Inclusive Framework on BEPS – a group of 115 countries and jurisdictions which collaborate on the implementation of these rules.
Liechtenstein sends a signal to the European community by implementing the required changes within just seven months
After the grey list had officially been published in December 2017, the Liechtenstein Ministry of Finance, the Liechtenstein tax authority and Liechtenstein University had formed a working group, drafting up changes to the tax system, with the goal to make Liechtenstein fully compliant with EU regulations.
The EU’s main concerns revolved around issues of dividend taxation and allowances for corporate equity. The Liechtenstein government implemented the changes proposed by the working group in July 2018. When the Economic and Financial Affairs Council (ECOFIN) came together on the 02nd October 2018, Liechtenstein’s case was re-evaluated, and the country was eventually removed from the list.
Together with Peru, Liechtenstein was the only country which was completely removed from the list. Other countries have abolished some, but not all, of the practices criticized by the EU. Neighboring Switzerland also remains on the grey list.
As Liechtenstein has fully implemented all requirements suggested by the EU, the country is now fully compliant to EU tax standards. The quick action of the Liechtenstein authorities underlines the country’s commitment to the EU as a major trading partner. This further strengthens the attractiveness of the location for the blockchain community, as the access to the European market and legal certainty are paramount to the industry’s success.
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