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Costa Rica president partially vetoes reform to avoid Europe's gray list

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Published on Monday, September 18, 2023
By the A.M. Costa Rica staff

President Rodrigo Chaves declared a partial veto of Reform No. 10.381 titled "Amendment to the Income Tax Law to remove Costa Rica from the European Union's list of non-cooperative countries in tax matters."

The ordinance was recently approved by Congress to achieve the European Union's standards to remove the country from the gray list.

The gray list is also known as the EU list of non-cooperative tax jurisdictions. The list is part of the European Union's efforts to fight tax evasion and avoidance.

According to Chaves, the partial veto is granted for patriotic considerations.

"We decided to partially veto this project for reasons of opportunity and convenience, but above all out of patriotic conscience," Chaves stated when he announced his veto. "Because this reform will result in a massive decrease in income through taxes collected by the Ministry of Finance, benefiting only a small group of unduly wealthy people."

Chaves further stated that if he had not vetoed a portion of the reform, the state would have lost approximately $68 million in tax money generated from corporations with activities both inside and outside of Costa Rica.

The reform is returned to Congress, where it must be re-analyzed by deputies for the lawmakers to make the required revisions to construct a new decree according to Chaves' approach.

The new reform, according to the government, should establish a tax link for European corporations with branches in Costa Rica.

Costa Rica was included on the list for the first time in February because it hasnít fulfilled its pledge to remove or reform the damaging parts of its foreign source income exemption regime.

The EU list now includes American Samoa, Anguilla, Bahamas, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands and Vanuatu, British Virgin Islands, Marshall Islands and Russia.

Listed countries either have not engaged in a constructive dialogue with the EU on tax governance or have failed to deliver on their commitments to implement the necessary reforms. 

"Those reforms should aim to comply with a set of objective tax good governance criteria, which include tax transparency, fair taxation and implementation of international standards designed to prevent tax base erosion and profit shifting," the EU said in its statement.

Costa Rica's name will be removed from the list if it passes a new law that meets all EU commitments.

What impact does Costa Rica's being on the blacklist have on the country's international trade?
We would like to know your thoughts on this story. Send your comments to news@amcostarica.com

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