The European Union has changed “blacklist” of jurisdictions for tax purposes

The European Union has changed “blacklist” of jurisdictions for tax purposes

10 October 2019 the Council of European Union (EU) has made several changes in the list of non-cooperative jurisdictions for tax purposes once again. 2 jurisdictions (United Arab Emirates and Marshall Islands) that was listed previously now have been excluded from the said “blacklist”.

This “blacklist” of jurisdictions was designed in December 2017 and included states and territories that do not cooperate in matters of exchange of tax information and establish preferential tax regimes (zero or low taxation), and also do not comply with common standards of tax transparency according to the Council of EU.

EU regularly conducts monitoring of tax and financial systems of third countries and renews the “blacklist” at least once a year. Jurisdictions that made commitment to eliminate the reasons of non-compliance of their tax legislation, general principles of tax and financial policies and judicial system with common standards, and finally succeeded in such elimination in the opinion of Council of EU are to be de-listed.

In light of establishment of economic substance requirements in the UAE in 2019 Council of EU has acknowledged that commitments of this jurisdiction to arrange reforms and improve the tax system have been fulfilled.  Marshall Islands have been excluded from the “blacklist” due to the improvement of exchange of information on request procedure.

Currently the “blacklist” includes 9 states and territories:

  • American Samoa
  • Belize
  • Fiji
  • Guam
  • Oman
  • Samoa
  • Trinidad and Tobago
  • US Virgin Islands
  • Vanuatu

The “blacklist” is necessary for the EU in order to prevent tax evasion with the use of corporate structures in jurisdictions that do not comply with common standards of tax transparency and fair tax competition, as well as do not require real economic activity of companies.

The preventive measures that may be applied by EU member states to residents of listed jurisdictions are as follows:

  1. Non-deductibility of costs;
  2. Controlled Foreign Company rules;
  3. Withholding tax measures;
  4. Limitation of participation exemption;
  5. Switch-over rule;
  6. Reversal of the burden of proof;
  7. Special documentation requirements;
  8. Mandatory disclosure by tax intermediaries of specific tax schemes with respect to cross-border arrangements.

It is also mentioned that starting from 2020 the “blacklist” will be renewed only twice a year based on results of monitoring of foreign jurisdictions’ tax systems made by the EU in order to evaluate their compliance with common standards of tax transparency.

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