The latest revision of the EU list of non-cooperative jurisdictions for tax purposes

Summary

On 14 February 2023, the Council of the EU, in a meeting of EU Ministers of Finance and Economy, introduced the revised Blacklist. The BVI, Costa Rica, Marshall Islands, and Russia were included due to their failure to comply with international taxation standards.

The Blacklist includes jurisdictions that either have not engaged in a dialogue with the EU on tax governance or have failed to implement the necessary tax reforms. Introduction of a certain jurisdiction to the Blacklist leads to defensive measures taken by the EU Member States (the “EU MS”) against such jurisdiction.

Background

The Blacklist was published as an annex to the decision adopted by the Council of the EU. It includes jurisdictions that did not make sufficient commitments to meet EU’s criteria by the required deadline.

The criteria used to determine whether a jurisdiction should be on the list include the level of tax transparency, fair taxation, and implementation of anti-base erosion and profit shifting measures. The updates of the list are provided twice a year in order to grant the EU MS enough time to amend domestic legislation.

Latest revision of the Blacklist

In the lastest revision, four new jurisdictions were added to the Blacklist – the BVI, Costa Rica, Marshall Islands, and Russia. The reasons for including these jurisdictions to the list are the following: 

• The BVI was found not to be compliant with the OECD standard exchange of information on request;
• Costa Rica failed to abolish or amend the harmful aspects of its foreign source income exemption regime;
• Marshall Islands were found as facilitating offshore structures and arrangements aimed at attracting profits without real economic substance;
• Russia was added due to its harmful preferential tax regime for international holding companies.

Considering these latest revisions, the Blacklist now includes the following jurisdictions: American Samoa, Anguilla, Bahamas, BVI, Costa Rica, Fiji, Guam, Marshall Islands, Palau, Panama, Russia, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands, and Vanuatu.

Luxembourg tax consequences

It is important to note that presence of certain jurisdiction in the Blacklist may lead to the following consequences in Luxembourg:

• Interest and royalty payments made to the blacklisted jurisdiction are non-deductible in Luxembourg when certain conditions are met;
• Transactions of a Luxembourg company with a related undertaking established in the blacklisted jurisdiction have to be reported to the Luxembourg tax authorities in the tax return (form 500);
• DAC 6 reporting obligation may arise under the hallmark C1(b)(II). This hallmark is met when an arrangement involves deductible cross-border payments made between two or more associated enterprises, where the recipient is in the blacklisted jurisdiction. Finally, hallmark C1(b)(I) may be applicable, whereby deductible cross-border payments are made to an associated enterprise resident in a jurisdiction that does not impose corporate tax, or that imposes corporate tax at a rate of zero or almost zero.

Our observations

The next revision of the Blacklist is planned for October 2023. By that time, some of the jurisdictions might succeed in demonstrating sufficient cooperation with the EU, in order to be delisted. It is recommended for businesses to be up to date on the planned revision.

Also, given that certain Luxembourg structures involve BVI entities, further to the inclusion of the BVI to the Blacklist, it may be advised considering an alternative structure.

For more information, you may contact:

• Jean-Nicolas Bourtembourg - Partner, Head of Tax & Transfer Pricing
• Mélina Rondeux - Partner, Tax Compliance