EU list of non-cooperative jurisdictions for tax purposes updated

The EU Council has published details of its update to the EU list of non-cooperative jurisdictions for tax purposes.

The EU Council has approved changes to the EU list of non-cooperative jurisdictions for tax purposes at the ECOFIN meeting held on 12 March 2019. The “black list” now contains 15 jurisdictions, including Barbados, Bermuda, the UAE and the US Virgin Islands. A larger number of jurisdictions, which have committed to agreeing necessary changes to their tax systems with the EU, remain on a second “grey list”. Details of the changes were published by the EU Council in the Council Conclusions on the Revised list of non-cooperative jurisdictions for tax purposes.

The announcement also acknowledges that further work is required to define acceptable economic substance requirements for collective investment funds and invites the EU Code of Conduct Group to provide further technical guidance to jurisdictions on this topic. There is limited detail on what these requirements might be.

Background

In 2015, the EU Commission released a somewhat controversial (and error strewn) publication of Member States’ black lists. This was followed in 2016, as part of the EU Anti-Tax Avoidance Package, by an updated listing and a commitment to agree common EU criteria for blacklisting third countries to encourage good governance and transparency outside the EU. In the meantime, the EU Code of Conduct Group on Business Taxation carried out a screening process on relevant jurisdictions, which led, eventually, to the publication in December 2017 of the EU black and grey lists of jurisdictions by the EU Council as part of its Conclusions on the EU list of non-cooperative jurisdictions for tax purposes.

Member States are encouraged to apply additional administrative measures for tax purposes to transactions or structures involving jurisdictions on the black list. In addition, financing from the European Fund for Sustainable Development is not available to such jurisdictions and further defensive measures are likely to be added in the future.

The black list

The black list contains those jurisdictions which are deemed “non-cooperative” based on the EU Criteria which are set out in the Council’s Conclusions and covering compliance with international standards of tax transparency, fair taxation and implementation of anti-BEPS measures.

The black list originally contained 17 countries, however several of these jurisdictions have since been removed whilst others have been added. Following the ECOFIN meeting on 12 March 2019, the list now contains 15 jurisdictions namely: American Samoa, Aruba, Barbados, Belize, Bermuda, Dominica, Fiji, Guam, Marshall Islands, Oman, Samoa, Trinidad and Tobago, the United Arab Emirates, the US Virgin Islands and Vanuatu. The inclusion of Bermuda and the UAE are particularly surprising, and it remains to be seen whether these jurisdictions will take steps promptly to seek removal from the black list.

The black list will be updated at least once per year, but the Code of Conduct Group can recommend an update at any time.

The grey list

The grey list contains a large number of different lists of jurisdictions in relation to which the EU Code of Conduct Group identified concerns during its screening process. The jurisdictions identified on the grey list have all committed to address these concerns by introducing relevant changes in their tax legislation in order to comply with the EU criteria. These jurisdictions are all, for the time being, regarded as “cooperative”, subject to the successful delivery of their commitments, which will be monitored by the Code of Conduct Group.

It was originally expected that most jurisdictions would implement the necessary changes by the end of 2018, with developing countries being given an extra year until the end of 2019. The updated listing indicates that many of these jurisdictions have been given an extension until the end of 2019 or even 2020 in some cases to deal with remaining concerns, although there are a number of jurisdictions that no longer feature on the list.

EU defensive measures

Beyond the mere stigma of being added to the EU black list, the only direct EU impact of being on the black list involves denial of EU financing from the European Fund for Sustainable Development, though further measures may be added in the future.

In addition, from a tax perspective, the EU encourages Member States themselves to apply either reinforced measuring of transactions involving blacklisted jurisdictions and/or increased audit risks for taxpayers benefiting from regimes in these jurisdictions or using structures involving these jurisdictions. In addition, Member States are encouraged to introduce other “defensive” measures such as withholding taxes, controlled foreign corporation (CFC) rules and further administrative measures targeted at such transactions involving such jurisdictions.

Further details

Further details of the EU black list and grey list can be found on the EU Council website.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.