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In Tunisia, many see EU tax haven blacklisting as political move

Tunisian politicians and experts balk at suggestion country is operating as tax haven
People walk past the Union des Banques Tunisiennes (Union of Tunisian Banks) office in Paris (AFP)

TUNIS - In a new EU blacklist of 17 "tax havens", Tunisia's inclusion is drawing criticism at home, with many calling it a political decision.

It was the first time EU finance ministers had published such a list, and while no agreement was made on whether the list was punishment in itself, or if further sanctions were needed, Tunisia’s inclusion on the list has made waves in the North African country.

Some in Tunisia have used the blacklist to launch into criticism of their own government, while others have criticised the European Union for what they see as a political decision.

The reasoning behind the move, according to the EU ambassador to Tunisia, who gave an interview to local media, stemmed from issues relating to Tunisia’s “offshore” sector and financial service providers.

The ambassador did not provide specifics, and in fact Transparency International criticised the EU for its opacity in making the list.  

Tunisia’s so-called “offshore” system has been crucial in helping to de facto integrate Tunisia into the EU economic zone, which benefits EU businesses.

And this system was encouraged by the EU and the World Bank as part of Tunisia’s economic restructuring in the 70s.

A Tunisian woman picks tomatoes in a field in Menzel Mhiri in July 2017, in the governorate of Kairouan (AFP)

The “offshore” sector is a classification for businesses in Tunisia that export most of their goods abroad.

Until 2015, businesses registered in this sector were tax exempt for the first 10 years of operation, and exempt from customs duties for inputs for further years.

In practice, many if not all of the businesses benefiting from this classification never make it past the 10-year mark, not only because of bankruptcy but because it is easier to relocate, restructure or reregister - a sort of loophole, according to Tunisian lawyers and labour researchers.

Economic opening up in 70s

The “offshore” classification and its preferential tax structure came in a series of laws in the early 70s that were part of a broader liberalisation and specifically opening up to Europe that was common to the Arab world at the time, in the form of “infitah” or “opening”.

In the case of Tunisia, this was part of a shift towards an export-led economic model in order to bring in foreign currency as well as to alleviate unemployment.

These policies ultimately benefited Europe, as they “encouraged the importation of machinery, materials, and capital from European investors; off-shore manufacturing concerns then employed Tunisian labour at low cost”, according to professor of government Gregory White.

Blacklisting is 'an attempt by some European countries to curb the relocation of European companies to Tunisia'

- Official in Tunisian finance ministry

These moves helped to increase Tunisia’s economic dependency on Europe, as the EU (then the European Community) negotiated to allow the importation of Tunisian light manufacturing, presenting this as a sort of concession, while blocking North African agricultural imports that have arguably fed Europe since Roman times.

Today about 80 percent of Tunisia’s exports go to Europe, with more than half going to France and Italy alone, and the World Bank notes that “Tunisia does not produce its exports but rather assembles components from or to the EU (and largely for France and Italy)”.

This may help to explain why some Tunisians interpreted the blacklisting as “an attempt by some European countries to curb the relocation of European companies to Tunisia”, as one anonymous official at the finance ministry told Jeune Afrique.

A plant processing phosphates in the port of the southern city of Sfax (AFP)
It is unclear how plausible this explanation is as even if the fiscal incentives for the offshore sector were removed, the labour costs of Tunisian workers are still far cheaper for French and Italian companies than if they were to hire French workers to answer customer service calls or Italian workers to sew clothes.

Another possible explanation is that the decision comes just as Tunisia is about to enter a new round of trade negotiations with the EU early next year and this tax-haven blacklisting is a form of pressure on Tunisia to offer better trade terms. This is an explanation alluded to by Tunisia’s biggest trade union and Nobel peace prize recipient the UGTT, in an official statement released in response to the blacklisting on 6 December.

The potential for pressure is that the blacklisting will threaten to block development assistance promised to Tunisia, aid that amounts to billions of dollars promised after the 2011 uprising, most of which has not come through.

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As soon as the EU blacklisting was announced last week, Tunisian politicians began looking at whether or not the country’s offshore sector can be considered a tax haven. 

Some parliamentarians have asked for clarifications from their own officials; another parliamentarian clarified that the financial analysis committee had discovered Tunisia has become a refuge for money-laundering.

In an interview, the Tunisian minister of development, investment and international cooperation seemed to acknowledge that the Tunisian state was still verifying if there were companies taking advantage of the offshore classification to operate as shell companies, companies registered under the "offshore" category largely to take advantage of the tax exemptions rather than to produce anything for export.

'A political fix'

Researchers who follow the offshore sector tell MEE that this is precisely the case with light manufacturing, textiles and call centres - labour-intensive industries that can be quickly dismantled, relocated or reregistered, have little to no assets in the country and seemingly are able to easily evade the poor capacity of the Tunisian state to regulate or otherwise police them.

And yet, this apparent reckoning with the policies and structures that could justify Tunisia’s classification as a tax haven seem to focus the discussion on one issue while leaving out others.

Some of the fiercest criticism of the blacklist has been linked to accusations that Tunisia’s problematic tax system pales in comparison with the policies and structures of numerous countries that were left off the EU’s blacklist. Tunisians and even European politicians have pointed out that it is unfair that European countries such as Luxembourg, Ireland, the Netherlands, and Malta were left off the list. 

The Tax Justice Network criticised the blacklist, calling it “a political fix with EU members picking their least favourite countries to name and shame” and pointing out that the UK fought hard to keep the crown dependencies and overseas territories - for which there is ample evidence that they operate as tax havens - off the list.

The US too, and in particular the state of Delaware, did not make the list despite the fact that it is one of the world’s top tax havens, according to numerous reports and studies dating back nearly four decades.  

Among countries in the Middle East, Bahrain and the United Arab Emirates also found themselves on the blacklist. 

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