The European Union, backed by founding member France, has been accused of intentionally bullying vulnerable Pacific Island nations over their tax practices.
The decision earlier this month to blacklist American Samoa, Fiji, Guam, Palau, Samoa and Vanuatu on relaxed tax laws that have allegedly eroded corporate tax revenues of EU member nations was also seen as a measure of neo-colonialism.
The Financial Centre Association of Vanuatu has stood up against suggestions coming from the most powerful trade block in the world that most of the Pacific has been a haven for tax fraud, tax evasion or illegal non-payments, minimising tax liabilities and money laundering.
“We think this is a tactic by the EU and, in particular, by France, who controls three territories in the region, to bully these countries into enacting higher corporate income tax and thus deny them any competitive advantage in the global race for investment,” the chairman of the Financial Centre of Association of Vanuatu, Martin St Hilaire, said.
“To add insult to injury, France has low-tax incentive programs for investors in their three Pacific territories.”
French Polynesia, New Caledonia – that are both considering political independence – and Wallis and Futuna remain tied to France’s economy and were unaffected by the tax blacklisting.
Mr St Hilaire felt it was all double standards over a lack of compliance to imposed EU standards.
“It is surprising that the EU pushes such an agenda on independent countries, such as Vanuatu while it is not pushed to EU colonies in the South Pacific, such as Wallis and Futuna (no income tax exists) or French Polynesia (no personal income tax) or New Caledonia (no personal capital gain tax exists),” Mr St Hilaire said.
“It is also surprising that Andorra or Monaco are accepted despite having no income tax.”
Vanuatu levies a consumption tax of 15 per cent on everything sold in the nation, along with several other taxes and fees, including stamp duty, import duties, and permit and licence fees.
But the country of 310,000 has not yet opted for income tax as a means to finance the state.
“The list of taxes is long, so I would not qualify Vanuatu as a tax haven as the only type of tax that is not yet levied is income tax,” he said.
Mr St Hilaire said simple tax laws were not to “displease the EU nor to attract foreign investment”, which the latter does not exist amid an underdeveloped economy scattered among its 83 islands.
About three-quarters of the population live from subsistence farming and without electricity or with quality running water.
“The decision taken by Vanuatu leaders, by the sovereign parliament of the nation to not implement income tax has nothing to do with the outside world, the EU or any ideological view,” he said.
“It is simply pragmatic, and it has been taken by wise leaders that understand the fragile social fabric of Vanuatu and foresees the danger of that path for the development equilibrium between Port Vila, the small capital of the country, and the rest of Vanuatu.”
Vanuatu has signed a number of treaties over international cooperation, exchange of information and is also a participant to common reporting standards.
The EU said in its council report that it only wanted to address external tax bases and to improve international tax governance, “given the global nature of unfair tax competition”.
But Mr St Hilaire said whether Vanuatu has an offshore financial centre was so far off the mark.
“It is simply ludicrous to tag Vanuatu as being a danger to EU tax system or to EU financial system,” he said.
“It is also ludicrous to associate Vanuatu to terrorist states like EU is doing.
“Another argument to dismiss the tax haven status is that tax justice network that maintains the rankings of tax havens – they rank the 70 most important tax havens and Vanuatu does not make the list as we are simply too small.”