“If the OECD concludes its procedure as planned, it is very likely that the EU will permanently remove Morocco from the gray list in its next update in October.”
Rabat – Morocco is still stuck on the European Union “Gray List” due to formalities, according to an April 30 report by the EU Code of Conduct Group (COCG). Despite making tangible progress in terms of tax law, the North African country has to wait until October 2020 for a final decision on its status.
The EU’s blacklist is a grouping of countries classed as “non-cooperative jurisdictions,” meaning that their tax governance is not compliant with EU regulations. The gray list tracks the progress of countries where governments are taking concrete steps to meet the recommendations.
The process “aims to enable fair and effective corporate taxation in the single market,” explains the EU Council on their website.
Countries on the EU blacklist are not eligible to trade with EU countries and so cannot enter into export-import deals with EU member states,
Morocco has engaged in active dialogue on its tax policies with the EU since 2018 and made enough tangible progress to move onto the gray list. However, despite significant reforms, the country did not meet its compliance deadline at the end of 2019 due to criteria related to transition periods for new fiscal legislation.
The EU Council granted Morocco an extension in February 2020, meaning that it will remain on the gray list. The Moroccan government has until the next review in October 2020 to meet criteria for compliance, or risk slipping back onto the blacklist as a “non-cooperative jurisdiction” despite having enacted the reforms.
“Australia and Morocco were granted until the end of 2020 to amend or abolish their harmful tax regimes,” outlined global accounting firm KPMG in their most recent EU blacklist update. The upcoming gray list review at the end of 2020 will concern closing the list entirely, leaving only a distinction between compliant countries and non-cooperative jurisdictions.
Failure to meet the EU tax standards would put Morocco’s export and import dealings with EU countries at risk, potentially causing serious damage to the Moroccan economy.
Tangible reforms
The EU remains confident that Morocco will take the necessary steps to leave the gray list. The latest deadline extension “is not indicative of a lack of commitment or ambition in this direction,” said the EU Commissioner for the Economy, Paolo Gentiloni, on February 18.
“We welcome the reforms introduced by Morocco in the 2020 appropriation which amends three preferential tax regimes that had been considered harmful to the European Union,” he said in praise of Morocco’s concrete progress.
In early 2020, Morocco adopted a new fiscal law to bring its tax legislation in-line with international standards.
Law 70-19 decreases the corporate tax rate from 31% to 28%.
Typical corporate tax rates globally range from 10 to 35%, although some countries have a 0% corporate tax rate. Morocco’s current rate is in line with France’s rate of 31%, but other countries in the region have lower corporate tax rates. Algeria’s rate is 26% and both Tunisia and Spain have a rate of 25%.
The reform brought Morocco’s fiscal legislation closer to European norms, and, according to the recent EU case report on Morocco, the country is compliant in the areas of free trade agreements and export laws.
The EU’s April 30 analysis of Morocco’s progress outlines Morocco’s journey to compliance and gives clear instructions for the country’s next steps. Despite being touted by numerous observers as a quasi-victory for Morocco, the reality of the report is more mundane.
“There is nothing new,” an anonymous source within the administration told Medias24. “The documents merely confirmed what has already been done by the EU.”
A case of fine print
The issues Morocco has run into as it undertakes significant tax reforms concern “grandfathering.”
A grandfather clause is a provision in newly adopted legislation concerning fiscal law, that exempts businesses or individuals already operating under the previously existing legislation, for a transition period.
Morocco’s Law 17-19 “stipulates a grandfathering period of 20 years for existing beneficiaries, in addition to any time remaining in the general 5-year exemption for new companies,” the EU report explains.
The lengthy grandfathering period was not in line with one EU criterion. Morocco clarified the length of the transitional period to the EU Council in January, explaining that a shorter transition period could lead to litigation from existing business owners at the cost of the state budget.
The COCG accepted the justification and deemed Morocco compliant. The delay, however, meant that Morocco missed the 2019 reform deadline on a technicality.
In February, assured that Morocco had met the criteria to exit the gray list once and for all, EU commissioner for the economy Gentiloni explained the next steps.
“Morocco has not yet left the ‘gray list’ and the reason is simply that the EC is awaiting the finalization of the Organisation for Economic Co-operation and Development (OECD) assessment of the Casablanca Finance City tax system,” he outlined.
The process is now a matter of formalities, and the EU always waits for the OECD to make a decision before finalizing its own.
“If the OECD concludes its procedure as planned, it is very likely that the EU will permanently remove Morocco from the gray list in its next update in October,” Gentolini assured the Moroccan government.
The OECD is set to sit in July to consider Morocco’s case and make a final decision on whether the North African country can finally exit the gray list, reports Medias24.
Despite the tangible and groundbreaking progress the Moroccan government has made since 2018, the fate of Morocco’s trade with the EU now rests in the hands of the OECD.
With the final closure of the gray list imminent, if the OECD finds the country non-compliant at its July meeting, Morocco will find itself out in the cold and back on the blacklist. The government can now do little more than wait for COCG’s October decision and hope for the positive outcome the country needs and deserves.
