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European Union Adopts Black List of 17 jurisdictions

By 22 december 2017 No Comments

On 5 December 2017, European Union (EU) finance ministers adopted a list of “non-cooperative jurisdictions for tax purposes” also known as  ‘The Black List’. The list is part of the EU’s work to counter worldwide tax evasion and avoidance. According to the EU, it will help the EU to deal more robustly with external threats to Member States’ tax bases and to tackle third countries that consistently refuse to play fair on tax matters. The list should create a positive incentive for international jurisdictions to improve their tax systems where there are deficiencies in their transparency and fair tax standards. No EU member states fall into the list because it should be recognized as a tool to deal with external threats to Member States’ tax bases.

The list is based on three screening criteria’s: tax transparency, fair taxation (no harmful tax regimes) and implementation of BEPS minimum standards. The Black List consists of 17 countries which failed to meet agreed tax good governance standards. The following jurisdictions appear on the EU Black List: American Samoa, Bahrain, Barbados, Grenada, Guam, Korea, Macao the Marshal Islands, Mongolia, Namibia, Palau, Panama, Santa Lucia, Samoa Trinidad Tobago, Tunisia, and United Arab Emirates.

In addition to the Black List, the EU finance ministers also adopted a “Grey List”. The “Grey List” includes entities which have committed to addressing deficiencies in their tax systems and to meet the required criteria and following contacts with the EU by the year-end 2018 (or in the case of developing countries by the year-end 2019). As those jurisdictions are not blacklisted, they would not fall within any of the sanctions discussed below. The Grey List includes 47 countries, among others, EU candidates Turkey, Serbia and Montenegro, as well as Switzerland, Bosnia and Herzegovina, Macedonia, Morocco, Thailand, Vietnam and Hong Kong.

Sanctions

The jurisdictions on the final Black List may face sanctions (‘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). Funds from these instruments cannot be channeled through entities in listed jurisdictions.

The European Commission recommends (not mandatory!) Member States to take tax sanctions against the EU Black Listed jurisdictions. The following defensive tax measures of legislative nature could be applied by the Member States: non-deductibility of costs, CFC rules, withholding taxes, limitation on participation exemption, switch-over rules, reversal of the burden of proof, special documentation requirements and mandatory disclosure by tax intermediaries of specific tax schemes with respect to cross-border arrangements. The European Commission does not provide any guidance on when the Member States should take the recommended sanctions.  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 Black List will be updated at least once a year. This update will be based on the continuous monitoring of Black Listed jurisdictions, as well as those that have made commitments to improve their tax systems (Grey Listed jurisdictions).