The EU tax blacklist is far from set in stone, with countries moving on and off with reasonable regularity due to the EU's semi annual review process (it has been revised 12 times since its inception in December 2017).

Last year's unexpected inclusion surrounded the addition of the Cayman Islands onto the list, which caused six months of DAC6/interest deductibility worry for anyone making payments from Luxembourg to Cayman. That issue was resolved with Cayman's removal last Autumn.

However, the uncertainty may not be over. In a press release last week the European Parliament announced that that "EU tax haven blacklist is not catching the worst offenders", damning the list as being confusing and ineffective. The European Parliament adopted a resolution seeking to reform the blacklist as follows:

1. formalising the process of adding and removing countries from the list based on a fixed set of conditions that are applied transparently. Interestingly, EU countries and key EU trading partners will not be exempt from the test, with the press release noting that EU countries are responsible for 36% of tax havens;

2. preventing the removal of a country from the blacklist unless it has made real changes rather than "symbolic tweaks". Notably the MEPs condemned the removal of Guernsey, Jersey and Cayman; and

3. a 0% tax rate policy that should automatically lead to being placed on the blacklist (which clearly has a wide ranging impact).

The countries on the European Parliament's "watch list" are (1) the British Virgin Islands, (2) Bermuda, (3) the Cayman Islands, (4) the Netherlands, (5) Switzerland, (6) Luxembourg, (7) Jersey, (8) Singapore, (9) the Bahamas, (10) Hong Kong and (11) Ireland. These countries are listed in the text of the resolution agreeing to reform as being, according to the Corporate Tax Haven Index 2019, the top-ranked jurisdictions in the corporate tax haven rankings. According to the resolution, and "using the most conservative apportionment formula", the EU has the highest losses globally as a result of profit shifting to tax havens and is estimated to lose about 20% of its corporate tax revenue every year". Clearly the massive Covid bill will be serving the focus minds on potential revenue streams and this profit shifting appears to be one avenue under scrutiny.

Other countries making an unwelcome appearance in the resolution are the UK and the US. The UK features more as a warning if there is a future "divergence on issues related to tax evasion and money laundering", although this is accompanied by a call for "a thorough assessment of said jurisdictions, including continued assessment of the UK’s overseas territories and Crown dependencies".

The inclusion of the US is more interesting and appears as part of a demand "for an equal and impartial assessment of the EU’s major trading partners... in particular, for a clear assessment of the US as regards the transparency criteria." The US has been in the Blacklist's sights before; in 2019 Paul Tang, a member of the European Parliament from the Netherlands, said on the matter: “So far the Trump Administration has not moved to adopt the OECD Common Reporting Standard. We have been assured by the European Commission that if it does not do so by June of 2019 the process for blacklisting will begin". These threats did not materialise, but interestingly, Paul Tang became the Chair of the European Parliament's subcommittee on Taxation last year and it is his name that is listed on the European Parliament website as a key player in this latest Blacklist update.

By way of reminder the key impacts of having a blacklisted jurisdiction in your structure are, broadly:

1. deductible payments made by an EU entity to an entity in a blacklisted country are reportable transactions under DAC6;

2. interest deductions from EU entities can be denied when paid to an entity in a blacklisted country; and

3. potential investor nervousness around investing into structures based in blacklisted countries/negative press comment.

Updating the EU [tax blacklist] listing criteria in order to adapt them to current and future challenges...[the European Parliament] Calls for an equal and impartial assessment of the EU’s major trading partners; calls, in particular, for a clear assessment of the US as regards the transparency criteria;

 https://www.europarl.europa.eu/doceo/document/TA-9-2021-0022_EN.html