UPDATE 1-EU to keep U.S. islands on tax blacklist, drop UAE, Switzerland

European Union finance ministers are set to remove the United Arab Emirates (UAE) and Switzerland next week from the bloc's lists of countries deemed to be acting as tax havens, an EU document said.

They will, however, continue to blacklist three U.S. territories. The 28-nation EU set up a blacklist and a grey list of tax havens in December 2017 after revelations of widespread avoidance schemes used by corporations and wealthy individuals to lower their tax bills.

The lists are regularly reviewed to take account of overhauls or to add new jurisdictions. At a meeting on Oct. 10, the bloc's finance ministers are expected to drop UAE from the blacklist, which includes jurisdictions that have failed to cooperate with the EU on tax matters. The Pacific archipelago of the Marshall Islands will also be removed from that list, an EU document said.

That would leave nine jurisdictions on the list. They are Belize, Fiji, Oman, Samoa, Trinidad and Tobago, Vanuatu and the three U.S. territories of American Samoa, Guam, and the U.S. Virgin Islands. Blacklisted states face reputational damage and stricter controls on transactions with the EU.

The inclusion of U.S. territories on the list has long been a source of friction with Washington. The tussle could escalate further after a bilateral trade war erupted this week over illegal EU aircraft subsidies. The UAE, the largest financial center still on the list, is due to be removed because it adopted new rules on offshore structures in September, the EU document said.

The Gulf state charges no corporate taxes, making it a possible target for firms seeking to avoid paying tax in the countries where they actually operate. The EU does not automatically add tax-free countries to its list, but to reduce the risk of tax dodging it had requested that the UAE introduce rules that would allow only companies with a real economic activity there to be incorporated.

SWITZERLAND In a separate decision, EU finance ministers are also due to removing major economic partner Switzerland from the grey list.

That list includes countries that have inadequate tax standards but have committed to change their rules to make them compliant with EU requirements. Switzerland has delivered on its commitments, the document said, acknowledging a tax reform passed last year, and due to be in force from 2020, it was sufficient to meet EU demands.

Albania, Costa Rica, Mauritius and Serbia are also set to be removed from the grey list next week. Dozens of jurisdictions around the world remain listed, including the Cayman Islands, Turkey, the Bahamas, and Bermuda. If they fail to deliver on their commitments by set deadlines, they are moved to the blacklist.

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