On 5 December 2017, the Economic and Financial Affairs Council (ECOFIN) determined a list of 17 non-cooperative jurisdictions, i.e. the EU black list. This list was established based on three (screening) criteria: tax transparency, fair taxation (no harmful tax regimes) and implementation of BEPS minimum standards. The Netherlands, Belgium, Luxembourg and Switzerland are not included in this black list. The ECOFIN recommends that (but does not oblige) the Member States apply tax sanctions towards the listed jurisdictions. The EU may apply non-tax sanctions.
The listed jurisdictions
The jurisdictions that appear on the EU black list are: American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad Tobago, Tunisia and United Arab Emirates.
The screening process of Anguilla, Antigua and Barbuda, Bahamas, British Virgin Islands, Dominica, Saint Kitts and Nevis, Turks and Caicos Islands, US Virgin Islands – was put on hold and is expected to be completed by the end of 2018.
The black listed jurisdictions may face sanctions (so-called: ‘defensive measures’) imposed by the Member States in the form of (administrative) tax measures and by the EU in the form of non-tax measures.
The non-tax measures are linked to EU funding in the context of the European Fund for Sustainable Development (EFSD), the European Fund for Strategic Investment (EFSI) and the External Lending Mandate (ELM). Such EU funding may not be channeled through entities in the black listed jurisdictions.
The ECOFIN recommends (but does not oblige) that Member States take tax sanctions against the listed jurisdictions including: non-deductibility of costs, CFC rules, withholding taxes, limitation on participation exemption, switch-over rules and reversal of burden of proof. If a Member State takes such measures, not only its domestic law but - depending on the measure - also bilateral tax treaties might have to be changed.
The ECOFIN also recommends that Member States take administrative tax measures against the EU black listed jurisdictions, such as increased audit risks for taxpayers benefiting from certain regimes or using structures involving these jurisdictions. The ECOFIN does not provide any guidance on when the Member States should take the recommended sanctions.
In addition to the EU black list, there is a separate list with 47 jurisdictions, including Switzerland. These jurisdictions have committed to address concerns raised on one or more of the screening criteria by introducing relevant changes in their tax legislation by year- end 2018 (or by year-end 2019 in case of developing countries). As those jurisdictions are not black listed, they would not fall within any of the recommended sanctions.
The ECOFIN intends to monitor and update the EU black list at least once a year. It remains to be seen to what extent the Member States will use the EU black list and will introduce the tax sanctions recommended by the ECOFIN. Still, this blacklist is already linked with other EU legislative proposals. For example, the public CbC reporting proposal includes stricter reporting requirements for multinationals with activities in listed jurisdictions. In the proposed Directive of mandatory disclosure rules for intermediaries, a tax scheme routed through an EU black listed jurisdiction will be automatically reportable to tax authorities Furthermore, the EU Commission is expected to support Member States' work to develop a more binding and definitive approach to sanctions for the EU black list in 2018. In any event, Member States may apply additional sanctions pursuant to their domestic laws as well maintain their own black lists of non-cooperative jurisdictions with a broader scope.