EU updates blacklist of non-cooperative tax jurisdictions

15 February 2023

Following a Council meeting on 14 February the EU has published its updated list of non-cooperative tax jurisdictions – the so-called “blacklist”.

Four new territories – the British Virgin Islands (BVI), Costa Rica, Marshall Islands and Russia – have been added, with none removed. See the updated list of non-cooperative tax jurisdictions.

The BVI, which was added because the EU judged it to be non-compliant with OECD standards on Exchange of Information, is perhaps the most significant financial centre now on the blacklist. Businesses with a BVI presence may now need to consider the possibility of being subject to “defensive measures” in EU countries. Since 2021 EU Member States have been committed to applying one or more specific unfavourable tax measures to entities in blacklisted territories. Those measures include;

  • denying a deduction for, or imposing withholding taxes on, payments to the entity;
  • applying controlled foreign company (CFC) rules to the entity; or
  • limiting participation exemption on dividends paid by the entity.

Beyond specific tax consequences, having a presence in a jurisdiction that has been identified as non-cooperative may also raise broader reputational issues that need to be considered.

Alongside the blacklist the EU also maintains a separate “greylist” of cooperative jurisdictions that have tax regimes with potentially harmful features, but which are taking steps to reform them in line with international best practice. The most significant financial centre on the greylist is Hong Kong, which remains listed while it completes the process of reforming its system of exempting foreign-sourced income and gains received by Hong Kong residents. While relevant reforms were included in Hong Kong’s 2022 Inland Revenue Bill which was passed in December 2022, they do not completely align with the latest EU guidance so Hong Kong remains on the list for the time being.

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