On 12 October 2021, The Commission of the European Union released a revised List of Non-Cooperative Jurisdictions for Tax Purposes (the EU List or the List).
The EU List is a tool for Member States to tackle external risks of tax abuse and unfair tax competition. Conceived in 2016, the first EU list of non-cooperative jurisdictions was published in December 2017. The list is the result of extensive screening using internationally recognised good governance criteria. The countries blacklisted are those that failed to make a high-level commitment to comply with agreed good governance standards.
The List confirms the role of the EU as world leader on tax good governance and the clear, credible and transparent process has proven fruitful – since the first list was released, many countries have been changing their national laws and tax systems to comply with international standards, raising global standards of good tax governance and bringing countries into international forums (like the OECD’s Global Forum for transparency and the Base Erosion and Profit Shifting (BEPS) Inclusive Framework). The listing process has also created a framework for dialogue and cooperation with the EU’s international partners, to address concerns with their tax systems and discuss tax matters of mutual interest.
The most recent update to the List relates to the Law on Measures to Prevent and Combat Tax Fraud (Law 11/2021, of 9 July), which replaced the concept of “tax haven” with that of “non-cooperative jurisdiction”, adapting to new international parameters. This is a more extensive concept than the previous one, as it updates its legal regime including those countries and territories characterised by:
- opacity and lack of transparency
- absence of mutual assistance regulations
- absence of effective exchange of tax information
- attracting profits without real economic activity
- low or no taxation
There is now a Blacklist and a Grey List – known as Annex I and Annex II.
Annex I – EU Blacklist or list of non-cooperative jurisdictions for tax purposes
|Trinidad and Tobago
||U.S. Virgin Islands
Annex II – Grey List of non-cooperative jurisdictions for tax purposes, based on specific criteria.
Countries with commitments made to the Transparency Indicator:
Countries in the Tax Equity Indicator (harmful tax regimes), which have until 31 December 2022 to adapt their legislation:
It should be noted that the inclusion of a country on the EU blacklist is not contrary any to Double Taxation Agreements (DTAs) in force. Bilateral commitments must be respected, but the legal consequences of the Blacklist are fully applicable for those specific items not covered by the specific DTAs.
Appearing on the EU List does have consequences. First, the List is linked to EU funding under provisions in the Financial Regulation and in the European Fund for Sustainable Development (EFSD), the European Fund for Strategic Investment (EFSI) and the External Lending Mandate (ELM). Funds from these instruments cannot be channelled through entities in countries appearing on the list.
Second, other relevant EU legislative proposals directly link to the EU List. For example, under EU transparency requirements for intermediaries, a tax scheme routed through an EU listed country will be automatically reportable to tax authorities. There are also stricter reporting requirements for multinationals undertaking activities in listed jurisdictions. The Commission is examining legislation in other areas to see where further consequences for listed countries can be introduced.
In addition, Member States agreed on sanctions to apply against the listed jurisdictions as of 1 January 2021. These include increased monitoring and audits, controlled foreign company rules, withholding taxes, special documentation requirements, limiting the participation exemption on shareholder dividends, and anti-abuse provisions. Many Member States have already adopted, or are drafting, legislation in line with these measures.
The EU Council will continue to periodically review and update the List so it reflects reforms made in the listed countries. In 2020, Member States agreed the EU List should be updated no more than twice a year, to ensure a stable listing process and so Member States can effectively apply defensive measures against listed jurisdictions. The next revision to the EU List is expected in February 2022.
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