Albania’s listing as non-cooperative tax jurisdiction and the lack of accountability on the responsibility of fiscal leadership

The EU works to promote and strengthen the mechanisms of tax good governance, fair taxation, and global tax transparency, to tackle tax fraud, evasion, and avoidance. Given the global nature of unfair tax competition, this also means addressing external challenges to EU countries’ tax bases.

In December 2017 [1], The EU introduced a list of non-cooperative tax jurisdictions (EU list). The purpose of this list is to serve as a resource to combat tax avoidance, harmful tax practices, unfair tax competition and money laundering. Likewise, in October 2022 [2] was the most recent listing based on the identification of tax deficiencies by the jurisdictions included in the list.

On February 14, 2023, the EU updated the list of non-cooperative jurisdictions, where the special thing for the Albanian public is the inclusion of our country in it [3] together with Turkey, Israel, Hong Kong, Armenia, Botswana, etc… While some of these countries have also been in the lists of previous years (Turkey, Botswana, etc.), Albania since the listing of the publication in the initial list on December 5, 2017, and which continued in the next nine consecutive publications until June 14, 2019, now reappears again in 2023.

From the findings expressed by the EU in the case of Albania, it is classified as a jurisdiction that, despite cooperating with the EU, has commitments that have not yet been fulfilled or are waiting to be fulfilled. The list is the result of a thorough review and dialogue process with non-EU countries to assess them against agreed criteria for good governance. These criteria are related to tax transparency, fair taxation, implementation of the OECD’s BEPS [4]

measures and basic requirements for countries with zero taxes.

The EU’s list of non-cooperative jurisdictions for tax purposes, as part of the EU’s work to combat tax evasion and avoidance, includes countries that have failed to meet their commitments to meet tax good governance criteria within a deadline certain time, and countries that have refused to do so.

What are the listing criteria [5]?

To be considered cooperative for tax purposes, jurisdictions are screened against a number of criteria:

Tax transparency
–  Jurisdictions must exchange tax data with all EU member states through the automatic exchange of tax information (AEOI), either through the Common Reporting System (CRS) established by the OECD or through equivalent agreements
–  Jurisdictions must also be able to exchange tax information upon request (EOIR)
– Jurisdictions must be party to the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters or have a network of exchange agreements covering all EU member states. The aspect of beneficial ownership will be incorporated at a later stage

Fair/honest taxation
–  Jurisdictions should not have harmful preferential tax measures
–  Jurisdictions should not facilitate offshore structures or arrangements that seek to attract profits without any real economic activity

Anti-BEPS (base erosion and profit shifting) measures
–  Jurisdictions should commit to implementing the OECD’s minimum anti-BEPS standards, which relate to harmful tax measures, treaty shopping, country-by-country reporting, and dispute resolution
–  Jurisdictions must receive positive peer reviews for effective implementation of the anti-BEPS minimum standard for country-by-country reporting

At the EU level, several tax and non-tax measures are imposed on the countries included in the list. These sanctions include, but are not limited to, withholding taxes, controlled foreign company rules, limitation of the participation exemption, and non-deductibility of costs related to entities in a listed jurisdiction.
The purpose of the EU list of non-cooperative jurisdictions, which was published on February 14, 2023, as an annex to the conclusions adopted by the Council [6], is not to describe the tax systems of countries as good or bad. involved, but to encourage positive changes in their tax legislation and practices through cooperation. The EU listing process has had a positive impact as most jurisdictions have engaged constructively with the EU during the listing process. Many have made concrete, high-level commitments to improve their standards because of the EU review exercise. This is the main achievement of the EU listing process.

Who could be the weakest points for Albania?

In the materials published so far, there is no list of weak points, but from the analysis of the progress report document, as a summary that evaluates and scans the activity of our country, we single out some of the most important moments, which we think have a direct impact.

Many decisions were taken at the ECOFIN meeting, the most sensitive of which was related to the addition of non-cooperative countries to its lists. Here’s what the Swedish Finance Minister said after the February 14 meeting about some of the decisions that were made: “Today, we decided to add four jurisdictions to the EU’s list of non-cooperative jurisdictions for tax purposes: the British Virgin Islands, Costa Rica, Marshall Islands and Russia. We ask all listed countries to improve their legal framework and work towards compliance with international tax standards. At the same time, I warmly congratulate North Macedonia, Barbados, Jamaica, and Uruguay as they successfully met their commitments and can be removed from the status document.”

This listing does not come as a coincidence for the Albanian government, if we also refer to the 2022 progress report of the European Commission for Albania [7], where in the summary of Chapter 16 “Taxation”, the report states that, “Limited progress has been made, in in particular addressing last year’s recommendations, including respecting agreed payment schedules for VAT refunds and reducing the stock of VAT refund arrears, adopting a new tobacco excise calendar and consultation of mid-term draft strategies, which includes proposals for addressing tax expenditures. Adopting a tax and criminal amnesty against EU councils and Moneyval could jeopardize progress in this area.”

Here is one of the aspects regarding the prevention of money laundering, which seems to affect the new listing of Albania, where expressly in the progress report, Chapter 4 after the finding, that “Although the IMF repeated in May 2022 its advice for Albania not to be included in a possible tax amnesty, given concerns about its impact on tax compliance, as well as money laundering and governance risks, in June the government published for consultation a draft law on fiscal and criminal amnesty for those that will make the voluntary disclosure of assets”, it is recommended to the Albanian authorities to “avoid jeopardizing progress in this area [8] by adopting a tax and criminal amnesty against the advice of the EU and Moneyval”

Furthermore, regarding the exchange of information, an interesting place in the progress report is noted regarding the finding that “Compared to 2020, in 2021 there were 3,143 fewer Secure Network Information Exchange Application (SIENA) messages shared by the State Police of Albania with international partners, which represents a decrease of 35%. This decrease can be explained by the recentralization of access to the SIENA channel within an Albanian State Police Directorate. An agreement was signed.”

In addition to the EU list, many EU member states have their own national list.

The interaction between national lists and the EU list varies, as some national lists include all jurisdictions in the EU list (either by individual inclusion or by direct reference), others are completely independent of the EU list. Furthermore, not every EU Member State has national legislation relating to a list of non-cooperative jurisdictions, and if an EU Member State has such legislation, it varies as to what kind of legislation it is and with which list. correctly connected.

Depending on the impact of the EU list on a particular EU member state, a change to the EU list could potentially trigger measures at national level and as a result have an impact on companies in the EU. Therefore, it is critical for the current governing leadership, but also that of public finance, to analyze and understand the issues on which the EU list refers, but also what kind of national legislation related to the EU list is the responsibility of each one, without continued to maintain a non-transparent and non-reflective attitude, as this is related to national security, as much as to the fate of all those whose minds and hearts are connected to Albania.

[1] The criteria were adopted by the Member States in November 2016 and used as the basis for an assessment based on the “screening scoreboard”.

[2] https://taxation-customs.ec.europa.eu/system/files/2022-10/221004.%20Tax%20deficiencies%20table.pdf

[3] https://taxation-customs.ec.europa.eu/system/files/2023-02/eu-list-update-14-02-202.pdf

[4] tax base erosion and profit shifting

[5] https://www.consilium.europa.eu/media/24230/08-ecofin-non-coop-juris-st14166en16.pdf

[6] https://taxation-customs.ec.europa.eu/news/ecofin-member-states-update-eu-list-non-cooperative-jurisdictions-tax-purposes-2023-02-14_en

[7] https://neighbourhood-enlargement.ec.europa.eu/system/files/2022-10/Albania%20Report%202022.pdf

[8] implementing the recommendations of Moneyval and the FATF Action Plan