Reform Aims to Eliminate Tax Haven Label

• Author: Guillem Domingo Pérez, Joan Albert Farré
• Position: Lawyers, DA-Advocats, Barcelona

Andorra's parliament is reviewing a tax package that would introduce significant legislative changes and could help remove the country's classification as a tax haven.

Andorra's economy currently is based on trade, tourism, and a financial system that favors bank secrecy. Because it lacks a modern tax system and exchange of tax information, Andorra has been qualified as a tax haven not only by its neighboring countries, but also by the OECD. To date, Andorra is one of five territories listed by the OECD as a tax haven.

The Andorran parliament now is debating a set of internal reforms, first introduced in June 2006, that are expected to be passed in the next six months. Once those bills are approved, the OECD will be required to reconsider Andorra's status as a tax haven.

The tax package contains draft bills that would introduce:

· a new, modern corporation income tax law with a tax rate of about 10 percent;

· an accounting law that would adapt to the European General Accounting Plan and that would require annual accounts and trigger audits based on the volume of turnover and the number of employed workers; and

· a foreign investment law that would establish limits for free foreign investment in Andorra and specify sectors that are protected in accordance with Andorran economic interests.

Those foreign investment sectors, in ranking order of protection, are:

· Business sectors reserved for...