On 5 December 2017, the Economic and Financial Affairs Council (ECOFIN) determined a list of 17 non-cooperative jurisdictions for tax purposes (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, being our firm’s home countries, are not included in this black list.
However, within the MENA region, Bahrain, Tunisia and the United Arab Emirates appear on the black list. The ECOFIN recommends (but does not oblige) that Member States apply tax sanctions. The EU may apply non-tax sanctions towards these jurisdictions. Furthermore, with respect to a number of MENA countries the screening raised concerns on one or more of the screening criteria, but commitmetns were given by the relevant countries to address such concerns (the ‘grey list’). These countries include Jordan, Morocco, Oman, and Qatar.
Criteria used to determine blacklisting
The criteria for determining whether a country will be blacklisted regard the following topics. A detailed overview can be found in Annex V to the Council Conclusions.
- Tax transparency:1.1. Common Reporting Standards (CRS);1.2. OECD Exchange of Information on Request (EOIR);1.3. OECD Multilateral Convention on Mutual Administrative Assistance (MCMAA) in Tax Matters;1.4. Future criterion: global exchange of beneficial ownership;
- Fair taxation:2.1. No harmful preferential tax measures;2.2. No facilitation of offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction;
- Implementation of anti-BEPS measures;3.1. Implementation of OECD anti-BEPS minimum standards;3.2. Future criterion: positive assessment for effective implementation of OECD anti-BEPS minimum standards.
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.
Application of criteria for blacklisted MENA countries
The Council Conclusions clarify why each of these countries is included in the black list. For the countries in the MENA region, this is substantiated as follows.
Bahrain does not cover all EU Member States for the purpose of automatic exchange of information, has not signed and ratified the OECD Multilateral Convention on Mutual Administrative Assistance as amended, facilitates offshore structures and arrangements aimed at attracting profits without real economic substance, does not apply the BEPS minimum standards and did not commit to addressing these issues by 31 December 2018.
Tunisia has harmful preferential tax regimes and did not commit to amending or abolishing them by 31 December 2018. Tunisia's commitment to comply with criterion 3 will be monitored.
United Arab Emirates The United Arab Emirates does not apply the BEPS minimum standards and did not commit to addressing these issues by 31 December 2018. The United Arab Emirates' commitment to comply with criteria 1.1 and 1.3 will be monitored.
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) the Member States to 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 (but does not oblige) 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.
The ‘grey list’
In addition to the EU black list, there is a separate ‘grey list’ with 47 jurisdictions. Our firm’s home countries the Netherlands, Luxembourg and Belgium do not appear on the grey list, but Switzerland does. Within the MENA region, Jordan, Morocco, Oman and Qatar are included in the list.
Grey-listed jurisdictions have raised concerns on one or more of the screening criteria but have committed to address such concerns 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.
Impact of black list
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 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.
For companies based in black-listed jurisdictions, it is highly recommendable to monitor the impact and to consider if restructuring may be required to mitigate any adverse impact.