Media Statement by Tony Pua in Petaling Jaya on Tuesday, 24^th June 2008: 

Deputy Finance Minister denies blacklisting of Labuan International Business and Financial Centre (IBFC) by the South Korean Government

Yesterday afternoon, while taking part in the debate the Labuan Offshore Financial Services (Amendment) Bill 2008, I have asserted that the Government has not put in sufficient effort to ensure recognition of Labuan as an offshore financial centre as it has been excluded from the Malaysian double-taxation treaties with 11 countries and has been "blacklisted" by the South Korean government. An excerpt of my speech from the Hansard is as follows:

Labuan ingin menjadi sebuah pusat yang lebih menarik syarikat pegangan ataupun holding companies dengan dasar cukai yang rendah, 3% sahaja. Akan tetapi Labuan telah dikecualikan daripada persetujuan double taxation daripada 11 negara termasuklah negaranegara penting seperti Korea, Australia, United Kingdom, Jepun, Sweden dan Netherlands.

Apatah lagi negara Korea Selatan telah pun menetapkan Labuan sebagai pusat pelindungan cukai dalam satu senarai hitam ataupun dengan izin black list. Negara-negara Eropah melalui organisasi OECD atau Organization for Economic Cooperation and Development juga telah mengesyaki Labuan sebagai satu pusat pelindungan cukai yang boleh mendatangkan keburukan. Kerajaan Malaysia telah lalai dalam tugasnya mempertahankan Labuan sebagai satu pusat kewangan luar pesisir yang berintegriti dan bersifat bertanggungjawab supaya Malaysia tidak dimasukkan di dalam senarai hitam.

The Deputy Finance Minister, Dato' Haji Ahmad Husni bin Mohamad Hanadzlah however, insisted that Malaysia has not been "blacklisted" by any government and the South Korean allegation has arisen out of a misunderstaning or misperception created by a report by Financial Times. The excerpt from the Hansard is as follows:

Yang Berhormat Petaling Jaya Utara juga menyentuh tentang isu antara Malaysia dengan Korea Selatan yang dikatakan bahawa Korea Selatan telah blacklist Labuan Offshore Financial Centre ini... Di mana wujudnya blacklisted tadi? Sebenarnya ini adalah datangnya daripada media iaitu financialtimes.com yang menggunakan perkataan blacklisted tetapi sebenarnya tidak. Malah pada hari ini sebanyak 123 buah syarikat Korea masih beroperasi di Labuan Offshore Financial Centre. Sekarang ini kita tidak panggil Labuan Offshore Financial Centre kerana hasil daripada rebranding ia dipanggil Labuan International Business and Financial Centre.

Firstly, I would like to clarify that being "blacklisted" does not mean that Korean companies cannot continue to remain in Labuan but it means that they will not be able to enjoy the low tax regime in Labuan and at the same time may be subjected to additional witholding tax by the South Korean government.

Secondly, the term "blacklisted" was not coined by Financial Times as alleged by the Deputy Minister. Baker Mckenzie, one of the largest and most reputable international law firms in the world, have reported in its circular update in 2006 that Korea has implemented special withholding procedure for "blacklisted" countries:

As part of the Korean government's efforts to combat perceived abusive tax avoidance structures used to channel investments into Korea, a new special tax withholding procedure was adopted... This new provision authorises the Ministry of Finance and Economy (MOFE) to designate countries or regions that it believes are frequently exploited for tax avoidance purposes. Entities located in a country or region placed on this "blacklist" by the MOFE are presumed to be tax treaty treaty shopping...

On June 30, 2006, MOFE placed Labuan, Malaysia on the blacklist of countries/regions presumed to be a jurisdiction used for tax avoidance purposes. To date, only Labuan has been placed on the blacklist.

Not only have Malaysia been blacklisted, we had the (dis)honour of being the first country/region to have made it into the list.

It is unfortunate that in the passing of the amendment to the bill, the Minister have either misled the House or was ignorant or was misinformed of certain facts relating to the issue. The information I have was based on a report by an international and reputable legal practice which would have taken more than necessary due care and diligence to ensure that the statements made are true and accurate.

It is hence important that the Minister made the necessary clarifications in the House and inform the House on the remedial steps being taken by the Government to restore the integrity and credibility of the Labuan IBFC.

*Download for the attached circular by Baker McKenzie with regards to Labuan's blacklisted status: http://www.bakernet.com/NR/rdonlyres/E950783C-0EC6-45C9-B2B0-7154FCB641D8/40935/2006APTaxUpdateKorea.pdf*

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* Tony Pua, MP for Petaling Jaya Utara