LUXEMBOURG (Reuters) - European Union finance ministers agreed to remove the United Arab Emirates, Switzerland and Mauritius from the bloc’s lists of countries deemed to be acting as tax havens, a move that activists called a “whitewash”.

FILE PHOTO: General view of Dubai from Burj Al khalifa in Dubai, United Arab Emirates, July 17, 2019. REUTERS/ Hamad I Mohammed/File Photo

The 28-nation EU set up a blacklist and a gray list of tax havens in December 2017 after revelations of widespread avoidance schemes used by corporations and wealthy individuals to lower their tax bills.

Blacklisted states face reputational damage and stricter controls on transactions with the EU.

As part of the regular review of the lists, the ministers decided to drop the UAE from the EU blacklist that covers jurisdictions that have failed to cooperate with the EU on tax matters.

The Marshall Islands has also been removed from that list, which still includes nine extra-EU jurisdictions - mostly Pacific islands with few financial relations with the EU.

The UAE, the largest financial center which was blacklisted, was removed because in September it adopted new rules on offshore structures, the EU said, giving it a clean-sheet on its tax practices.

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 countries that charge no tax - a sign of being a tax haven - to its blacklist, but it requested the UAE introduce rules that would allow only companies with a real economic activity there to be incorporated in order to reduce risks of tax dodging.

“SWEET TREATS”

Under an initial version of the overhaul, the UAE exempted from the requirement “all entities in which the UAE government, or any of the Emirates of the UAE, had direct or indirect ownership (no threshold) in its share capital”, an EU document said.

That reform was deemed insufficient by EU states and prompted an amendment, adopted in September, that excluded from the requirement only companies in which the UAE government owns directly or indirectly a 51% share of the capital.

This reform was considered by EU ministers as sufficient to remove the UAE from the blacklist.

Jurisdictions that remain blacklisted 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

Major economic partner Switzerland was removed from the EU gray list covering countries that have committed to change their tax rules to make them compliant with EU standards. It has delivered on its commitments, the EU said, and therefore is no longer listed.

They also removed the Indian Ocean island of Mauritius, Albania, Costa Rica and Serbia from the gray list, leaving around 30 jurisdictions on the list.

Countries in the gray list could be moved to the blacklist if they fail to deliver on their commitments.

“The EU has whitewashed two of the world’s most harmful tax havens,” Chiara Putaturo of Oxfam, an anti-poverty group, said in reference to the decision of delisting Switzerland and Mauritius.

“Despite recent reforms, both countries will continue to offer sweet treats to tax-dodging companies,” she said.