What is the EU Blacklist?
The EU maintains the EU list of non-cooperative jurisdictions for tax purposes (the EU Blacklist) to identify countries that in the view of the EU Commission, could be seen as allowing abusive tax practices– a charge that many of the jurisdictions would reject. It is a dynamic list, reviewed twice a year with frequent changes. On 14 February 2023, the European Commission updated the EU Blacklist to include the British Virgin Islands, Costa Rica, the Marshall Islands and Russia (the New Blacklisted Countries). The full EU Blacklist is now:
- American Samoa
- Anguilla
- Bahamas
- British Virgin Islands
- Costa Rica
- Fiji
- Guam
- Marshall Islands
- Palau
- Panama
- Russia
- Samoa
- Trinidad and Tobago
- Turks and Caicos Islands
- US Virgin Islands
- Vanuatu
(the Blacklisted Countries)
What are the implications of being blacklisted?
- Defensive measures. In order for the EU Blacklist to have effect, EU Member States are encouraged to put into place various defensive measures against Blacklisted Countries.
These include:
- Imposition of increased withholding taxes on payments .
- Denial of tax relief for payments (for example, interest, royalties and other fees).
- Controlled foreign corporation rules that operate to include income of any entity resident or with a permanent establishment situated in a listed jurisdiction in the taxpayer’s tax base.
- Denial of tax exemption for any dividends or other profits treated as received from a blacklisted jurisdiction.
To date, almost all EU Member States have implemented all or most of the defensive measures above, although the scope of the measures may vary across Member States: for example, the amount of withholding tax applied to payments to Blacklisted Countries may differ in different countries.
The UK has not enacted defensive measures directed at Blacklisted Countries.
- Reporting obligations. Cross-border payments or transfers to Blacklisted Countries made between associated persons will be likely to fall within a reportable hallmark for DAC 6 purposes. This would apply to DAC 6 as implemented by EU Member States, but will not apply to the UK’s similar, but more limited scheme, the mandatory disclosure regime. For DAC6 purposes, the obligations will apply regardless of whether that payment or transfer is tax-motivated or gives rise to any tax benefit. This means that the making available for implementation, or the taking of any steps in implementation, of any arrangement affecting an EU Member State and involving any such payment or transfer will be disclosable.
- New Blacklisted Countries
The above measures will not apply automatically to the New Blacklisted Countries in all Member States: further affirmative action, such as the passing of additional legislation, may need to be taken by an individual Member State.
Concerns for the shipping industry
The EU Blacklist now includes some key shipping jurisdictions such as the Marshall Islands, the Bahamas and the British Virgin Islands. EU entities which have involvement with these jurisdictions will need to consider whether this impacts any reporting obligations and whether any of the defensive measures will have implications for structures or transactions which those entities are involved with. It may be that some of the jurisdictions are already discussing their inclusion with the Blacklist with the EU Commission and so their inclusion may be short-lived.
If you would like to discuss this further, please get in touch with your usual Norton Rose Fulbright contact.
