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Despite an ongoing reform of the Andorran tax structure and efforts to diversify the economy, international ratings agency Standard and Poor's has attached a negative outlook to Andorra's A-/A-2 long- and short-term sovereign credit ratings.
Standard and Poor's expects tax revenues to rise due an economic recovery, expected to slowly start from this year, and the introduction of a personal income tax in 2015. Nevertheless, it predicts that the country's economic prospects will remain weak due to continued economic stagnation in France, and the recession in Spain.
It said that higher expenditures may offset increased revenue collections, however.
Further, the agency said there are still risks arising from Andorra's large banking sector, which trails international norms in terms of the timeliness of reporting and the adoption of international financial reporting standards.
The country has newly introduced a direct tax on corporate profits of around 10 percent and plans to introduce a personal income tax next year, to bring the Principality's tax structure into line with international norms and to enable the agreement to begin signing double taxation agreements. Additionally, the nation has moved from a gross receipts consumption tax, ISI, to a value-added tax-like regime, under IGI. It is currently modifying the IGI tax on banks, however, to address shortcomings arising from the transition, and to boost revenue levels.
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