On 17 October 2023 the European Council made significant adjustments to its list of non-cooperative jurisdictions for tax purposes (the EU Tax Blacklist).
- Added: Three countries, Antigua and Barbuda, Belize, and Seychelles were added to the EU Tax Blacklist because, from the EU’s perspective, they did not properly enforce tax transparency standards.
- Removed: At the same time, three other jurisdictions were removed from the tax blacklist: the British Virgin Islands, Costa Rica, and the Marshall Islands. As relevant to Harneys’ jurisdictions, the British Virgin Islands was removed from the list as the EU acknowledged it had improved its framework for exchanging information on request (criterion 1.2). The BVI has however committed to being reassessed in line with the OECD standard, and it has been included in Annex II in the meantime.
Following this update, the EU Tax Blacklist now comprises 16 jurisdictions, which from the European Council’s opinion have either failed to enhance their standards of tax good governance or have made inadequate progress in fulfilling their prior commitments.
In addition to the list, the EU Council also approved a "state of play" document recognising cooperative jurisdictions that have made efforts to align with tax governance standards. Jordan and Qatar fulfilled commitments by amending harmful tax regimes, while Montserrat and Thailand met all their pending commitments related to country-by-country reporting of taxes paid.
The EU's list of non-cooperative tax jurisdictions was established in 2017 to promote global tax good governance. It is a dynamic process with biannual updates since 2020. The next revision is set for February 2024. The EU Council collaborates with international bodies like the OECD Forum on Harmful Tax Practices to enhance tax governance globally.
EU defensive measures on tax
From the perspective of EU Member State operators, dealings with a person or entity from an EU Tax Blacklist jurisdiction can be problematic as it can trigger defensive measures potentially leading to adverse tax consequences. Even if defensive measures are applied by each Member State individually the key measures can be summarised as follows:
- Withholdings tax measures: for example, in Cyprus withholding tax will be levied on certain dividend and interest payments.
- Mandatory reporting obligations under DAC6: triggered if tax deductible payments are made to an associated enterprise resident in a jurisdiction listed on the EU Tax Blacklist (without the need to meet any main benefit test).
- Non-deductibility of cost: for example, in Luxembourg interest and royalties paid to an entity located in such jurisdiction would not be tax deductible which could hence give rise to tax leakage especially in back-to-back situations.
Even if outside of the EU the fact that a jurisdiction is or is not on the EU Tax Blacklist has a minimum impact, the removal of a jurisdiction from this list removes the risk of defensive measures which could negatively impact structures with an EU nexus.
The EU Tax Blacklist as distinguished from other black or grey lists
The EU Tax Blacklist relates to the assessment by the EU of tax-related measures in various jurisdictions globally and is closely associated with initiatives undertaken by the OECD under its Base Erosion and Profit Shifting (BEPS) programme.
It should be distinguished from other lists maintained by the EU (eg Annex II) and other organisations, such as the Financial Action Taskforce (FATF) which focus on the compliance by jurisdictions globally with anti-money laundering and terrorist financing standards. The EU maintains its own AML-related blacklist which closely tracks and monitors FATF black and grey lists on AML compliance. It is important to note that being on one blacklist does not necessarily entail inclusion on another.
More critically still, only inclusion on the EU Tax Blacklist entails the imposition of the EU defensive measures on tax referred to above and hence needs to be monitored closely.
More information on the EU Tax Blacklist is available here.