The EU ECOFIN blacklist of non-cooperative jurisdictions and its implications

Although Lorenz & Partners make every effort to provide correct and up to date information in our newsletters and brochures, we cannot take responsibility for the accuracy of the information provided. The information contained in this newsletter is not meant to replace a personal consultation with a qualified lawyer. Liability claims regarding damage caused by the use or misuse of any information provided, including information which is incomplete or incorrect, will therefore be rejected, unless this misinformation is deliberate or grossly negligent.

I. Introduction

In November 2016, the Council mandated the Code of Conduct Group (business taxation), a special group established by the Council, to carry out the preparatory work to establish the above-mentioned list. The Code of Conduct Group started with the screening of 92 jurisdictions, selected on the basis of their economic ties with the EU, their institutional stability and the importance of the country’s financial sector. The group’s screening and assessment report was submitted to the Council, and based on the report, the EU’s first ‘country blacklist’ was adopted on 5 December 2017. Since then, the Council releases an update a list twice a year.

On 20 February 2024, the EU Economic and Financial Affairs Council, represented by EU finance ministers, held its meeting and established changes to its ‘list of non-cooperative jurisdictions’ for anti-tax avoidance purposes.

II. Blacklisted jurisdictions

In the recent meeting, no new jurisdictions were added to the list of countries that were found not to be sufficiently in compliance with the Organization for Economic Cooperation and Development (OECD) standards.

The following jurisdictions are continuously listed:

• American Samoa
• Antigua and Barbuda
• Anguilla
• Fiji
• Guam
• Palau
• Panama
• Russia
• Samoa
• Trinidad and Tobago
• US Virgin Islands
• Vanuatu

Notably, two out of three jurisdictions added to the list in the previous council meeting in October 2023 were found to have sufficiently amended their regimes and were removed again from the blacklist in this month’s council meeting:

Belize and Seychelles were included in the EU list of non-cooperative jurisdictions for tax purposes in October 2023 after a negative assessment from the OECD Global Forum with regard to exchange of information on request. Following changes to the applicable rules in these jurisdictions, the Global Forum has granted them both a supplementary review, which will be undertaken in the near future. Pending the outcome of this review, Belize and Seychelles have been included in the relevant section of Annex II. Annex II is a ‘state of play’ document that lists countries with ongoing constructive international cooperation to implement tax governance rules compliant to OECD standards.

Furthermore, the council removed Bahamas and Turks and Caicos Islands from the blacklist. The two jurisdictions were included since October 2022 due to deficiencies in the enforcement of economic substance requirements identified by the OECD Forum of Harmful Tax Practices (FHTP). In the FHTP’s most recent assessment, the recommendations to both jurisdictions to remedy these deficiencies were converted from “hard” to “soft” recommendations, which allowed the Code of Conduct Group to consider these jurisdictions compliant with the

standard for jurisdictions with no or only a nominal corporate income tax.

Hong Kong and Albania, which were previously listed in Annex II, fulfilled their commitments by amending their tax regime and will be removed from the ‘state of play’ document.

III. Measures against blacklisted jurisdictions

Possible ‘defensive measures’ against blacklisted jurisdictions include:

• Denying deduction of costs and payments that otherwise would be deductible when these costs and payments are treated as directed to entities or persons in blacklisted jurisdictions.
• Including in the taxpayer company’s HOME tax base the income of an entity resident or a permanent establishment situated in a blacklisted jurisdiction, in accordance with the Anti-Tax Avoidance Directive rules for controlled foreign companies.
• Applying a withholding tax at a higher rate on payments such as interest, royalties, service fee or remuneration, when these payments are treated as received in blacklisted jurisdictions.
• For those member states with rules that permit excluding or deducting dividends or other profits received from foreign subsidiaries, denying, or limiting these ‘participation exemptions’ if the dividends or other profits are treated as received from a blacklisted jurisdiction.

The next revision of the list is expected in October 2024.