EU revises list of non-cooperative jurisdictions

On May 15, 2019 the EU Council adopted a revised EU blacklist of non-cooperative jurisdictions for tax purposes. After including ten jurisdictions in March, the EU decided to remove Barbados, Bermuda and Aruba from the list. This decision was based on commitments made by the listed jurisdictions and an assessment of jurisdictions for which no listing decision had been taken yet.

Currently, 12 jurisdictions remain on the EU list of non-cooperative jurisdictions: American Samoa, Belize, Dominica, Fiji, Guam, Marshall Islands, Oman, Samoa, Trinidad and Tobago, United Arab Emirates, US Virgin Islands and Vanuatu. The Netherlands has significantly more jurisdictions placed on its blacklist. An overview of the jurisdictions (as well as their CIT tarif) of both the EU and the Netherlands is provided in the 'Download as PDF' button.

Background

The council classifies the EU blacklist a common tool for Member States to tackle external risks of tax abuse and unfair tax competition. The jurisdictions that are blacklisted are those that failed to make a high-level commitment to comply with the agreed good governance standards. The criteria that the EU listing uses are (in short):

• Transparency
• Fair Tax Competition
• BEPS implementation

The jurisdictions currently listed on the EU list will be de-listed when they, in general, do not have harmful tax regimes and implement the OECD's Base Erosion and Profit Shifting (BEPS) minimum standards. In addition to this, jurisdictions have to comply with international standards on automatic exchange of information and information exchange on request. Also an interesting criterion is that such a jurisdiction has to ratify the OECD's multilateral convention or signed bilateral agreements with all Member States, to facilitate this information exchange.

What sanctions will apply?

To start off, the EU blacklist is linked to various EU funding programs such as funds for developing countries, mobilizing private financing for strategic investments and external lending projects in those countries. Funds from these instruments cannot be channeled through entities in listed countries. In addition, there is a direct link to the EU list in other relevant legislative proposals. For example, under the new EU transparency requirements for intermediaries, a tax scheme routed through an EU listed country will be automatically reportable to tax authorities. Also, Country-by-Country reporting standards include stricter reporting requirements for multinationals with activities in blacklisted jurisdictions.

From a tax perspective however the most significant sanction would be that Member States agreed on sanctions to apply at national level against the listed jurisdictions. These include measures such as increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions.

The blacklist is in direct interaction with (among others) Controlled Foreign Company (CFC) legislation. The CFC legislation, implemented in all Member States as a result of ATAD1, determines that income generated by controlled companies (i) established in jurisdictions with a statutory rate of, in the case of the Netherlands, less than 9% or (ii) established in non-cooperative countries that are blacklisted by the EU, have to be included in the tax base of the parent company of the CFC. The new CFC rules are in The Netherlands CIT law included in the new article 13ab CITA. For a detailed explanation reference is made to our main article on this topic (see pp. 4).

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