EU’s ECOFIN Council releases updated list of non-cooperative jurisdictions for tax purposes

In brief

On 8 October 2024, the EU’s ECOFIN Council approved the latest list of non-cooperative jurisdictions for tax purposes. No countries were added to Annex I (the so-called blacklist). Annex II of the list (grey listed countries) was also updated with Antigua and Barbuda added, while Armenia and Malaysia have been removed from the grey list. 

The takeaway

Listing a country under Annex I may result in tax consequences for groups which have entities located in those jurisdictions, including increased withholding taxes, non-deductibility of payments to blacklisted jurisdictions, inclusion under CFC regimes, or limiting the participation exemption on shareholder dividends. 

For instance, tax deduction of interest or royalties paid or due to related parties may be disallowed if these are corporate entities established in countries that are “blacklisted” as being “non-cooperative” for tax purposes. It applies for expenses paid or due as from 1 March 2021. Luxembourg tax authorities also issued a circular on 31 May 2022 (LIR n°168/2) which indicates that a ruling request may be filed in order to secure the application of the “escape” rule (i.e. non-application of the non-deduction rule if the taxpayer can prove that the arrangement giving rise to the expense satisfies “valid commercial reasons that reflect economic reality” test).  

As a second example, transactions carried out with non-cooperative jurisdictions may also be reportable under DAC 6 provided that they meet the different requirements. Based on the hallmark C.1.b.ii, an arrangement which involves any type of deductible cross-border payments made between associated enterprises where the recipient is resident for tax purposes in a jurisdiction included in a list of third-country jurisdictions which have been assessed by member states collectively (i.e. the Blacklist) or within the framework of the OECD as being non-cooperative, should be considered as cross-border reportable arrangement under DAC6. 

Finally, Luxembourg entities entering into transactions with related undertakings that are established in a blacklisted country are expected to tick a box in their corporate tax returns. Based on the related administrative circular dated 7 May 2018 (i.e. Circulaire du directeur des contributions L.G. - A n°64 - replaced by the above circular dated 31 May 2022), Luxembourg tax authorities mentioned that they would specifically look into transactions with such entities. So practically, we expect that when the box is ticked positively, Luxembourg tax authorities may request further information, e.g. total amount of related income and expenses linked to those transactions, summary of receivables and debt with such related parties, etc.