EU’s ECOFIN Council releases updated list of non-cooperative jurisdictions for tax purposes
In brief
On 14 February 2023, the EU’s ECOFIN Council approved the latest list of non-cooperative jurisdictions for tax purposes. Four jurisdictions—Russia, British Virgin Islands, Costa Rica and Marshall Islands—were all added to Annex I (the so-called blacklist). No countries were removed from the previous list (published in October 2022). Annex II of the list (grey listed countries) was also updated with Albania, Aruba and Curaçao added, while North Macedonia, Barbados, Jamaica and Uruguay have been removed from the grey list.
In detail
Black-listed jurisdictions
The list of jurisdictions in Annex I now includes:
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The EU Code of Conduct Group (the “Group”) is in charge of assessing jurisdictions adherence to global tax standards, and if jurisdictions are found to be insufficiently compliant, maintaining a harmful tax practice, or are unresponsive in dealing with the Group’s advice, the Group will recommend to the Council that the jurisdictions be listed.
Given the political situation as well as the fact that it previously had been grey listed, it has been decided that Russia should be grey listed once again. We note that the Council underlines Russia’s “unprovoked military aggression against Ukraine… prevents the Code of Conduct Group from maintaining a dialogue with the Russian authorities”. Russia’s listing more formally centres around its international holding company tax regime, which is regarded as a harmful tax practice by the EU Code of Conduct Group.
The British Virgin Islands is listed as a result of the findings of the OECD peer review process, which reviewed the state's historical compliance with the international standard on transparency and exchange of information on request (EOIR), in addition to completing an assessment of the jurisdiction’s legal and regulatory framework.
While the British Virgin Islands may expect to be removed from the list if recent changes are recognised as part of the next review, Russia is unlikely to be removed given the ongoing war in Ukraine.
In addition, annex II, showing so-called ‘grey listed’ countries has also been amended and the list now includes Albania, Aruba and Curaçao.
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.
The banks and the other professionals of the financial sector may also be impacted and should consider the updated list and assess their exposure based on their typology of clients. It should have consequences on the risk assessment performed on the client to ensure their compliance with the AML/KYC regulations and other regulations.
For instance, transactions carried out with non-cooperative jurisdictions may also be reportable under DAC 6 provided that it meets 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.
