EU adopts list of non-cooperative jurisdictions for tax purposes (black list)
On 5 December 2017, the Economic and Financial Affairs Council (ECOFIN) determined a list of 17 non-cooperative jurisdictions, i.e., the EU black list. This list was established based on three (screening) criteria: tax transparency, fair taxation (no harmful tax regimes) and implementation of BEPS minimum standards.
The Netherlands, Belgium, Luxembourg and Switzerland are not included in this black list. Subsequently, on 23 January 2018, the list was updated with 8 jurisdictions being removed following commitments made at a high political level to remedy EU concerns. The ECOFIN recommends (but does not oblige) that the Member States impose tax sanctions on the listed jurisdictions. The EU may impose non-tax sanctions.
The listed jurisdictions
The jurisdictions which originally appeared on the EU black list were: American Samoa, Bahrain, Barbados, Grenada, Guam, (Republic of) Korea, Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad Tobago, Tunisia and the United Arab Emirates (UAE). In the meantime, Barbados, Grenada, the Republic of Korea, Macao SAR, Mongolia, Panama, Tunisia and the UAE have been removed from that list.
Furthermore, the screening process of Anguilla, Antigua and Barbuda, Bahamas, British Virgin Islands, Dominica, Saint Kitts and Nevis, Turks and Caicos Islands, US Virgin Islands – has been put on hold and is expected to be completed by the end of 2018.
The black listed jurisdictions may face sanctions (so-called: ‘defensive measures’) imposed by the Member States in the form of (administrative) tax measures and by the EU in the form of non-tax measures.
The non-tax measures are linked to EU funding in the context of the European Fund for Sustainable Development (EFSD), the European Fund for Strategic Investment (EFSI) and the External Lending Mandate (ELM). Such EU funding may not be channelled through entities in the black listed jurisdictions.
The ECOFIN recommends (but does not oblige) that Member States impose tax sanctions on the listed jurisdictions including: non-deductibility of costs, CFC rules, withholding taxes, limitation on participation exemption, switch-over rules and reversal of the burden of proof. If a Member State takes such measures, this might lead to having to change not only its domestic law but - depending on the measure - also bilateral tax treaties.
The ECOFIN also recommends that Member States take administrative tax measures against the EU black listed jurisdictions, such as increased audit risks for taxpayers bene ting from certain regimes or using structures involving those jurisdictions. The ECOFIN does not provide any guidance on when the Member States should impose the recommended sanctions.
Separate list with 47 jurisdictions
In addition to the EU black list, there is a separate list with 47 jurisdictions, including Switzerland. These jurisdictions have undertaken to address concerns raised on one or more of the screening criteria by introducing relevant changes in their tax legislation by year-end 2018 (or by year-end 2019 in the case of developing countries). As those jurisdictions are not black listed, they would not fall within any of the recommended sanctions.
Monitor and update
The ECOFIN intends to monitor and update the EU black list at least once a year. It remains to be seen to what extent the Member States will use the EU black list and will introduce the tax sanctions recommended by the ECOFIN. Still, this blacklist is already linked with other EU legislative proposals. For example, the public CbC reporting proposal includes stricter reporting requirements for multinationals with activities in listed jurisdictions.
In the proposed Directive of mandatory disclosure rules for intermediaries, a tax scheme routed through an EU black listed jurisdiction will be automatically reportable to tax authorities Furthermore, the EU Commission is expected to support Member States’ work to develop a more binding and de nitive approach to sanctions for the EU black list during 2018. In any event, Member States may apply additional sanctions pursuant to their domestic laws as well maintain their own black lists of non-cooperative jurisdictions with a broader scope.
Natalie ReypensPartner Attorney at Law
Natalie Reypens is a member of the Loyens & Loeff International Tax Services Practice Group and heads the Belgian Transfer Pricing Team. She is a partner in our Brussels office. She focuses on corporate and international tax law.T: +32 2 743 43 37 E: email@example.com