What is the EU blacklist?
Over the past few years the European Council adopted several measures for the purpose of achieving fair taxation in the EU.
One of the first steps part of the Commission’s ambitious agenda for dealing with tax evasion and the harmful tax competition of enterprises, was the adoption of Anti-Tax Avoidance Package.
The Package envisages concrete measures to prevent aggressive tax planning, boost tax transparency and create a level playing field for all businesses in the EU by guaranteeing fair competition for all enterprises.
The Member States are urged to take more explicit and coordinated actions against the companies which are trying to avoid payment of the due taxes. The control for applying the international standards for dealing with the reduction in the tax base and profit transfer is essential.
One of the main measures, included in the Package is the new procedure for preparation of the EU list of non-cooperative tax jurisdictions. The EU list is a common tool for Member States to tackle external risks of tax abuse and unfair tax competition. Within the discussion, it is pointed out that a single EU blacklist would hold much more weight than a medley of national lists and would have a dissuasive effect on problematic third countries.
Member States supported the idea and agreed on the first EU list of non-cooperative jurisdictions in December 2017. This list was the result of an extensive screening of 92 jurisdictions, using internationally recognized good governance criteria.
The countries which eventually are in the blacklist are those who were not engaged on high level to follow the agreed good governance standards. Many other countries did commit to comply with the listing criteria within a set deadline – usually the end of 2018. Member States agreed that these countries should be monitored by the Code of Conduct Group and the Commission, to ensure that they delivered fully and on time. The Commission was asked to assess these countries’ progress once the deadline was up, so that Member States could decide on an updated EU list.
Which are the criteria used in EU listing process?
The EU listing criteria are aligned with international standards and reflect the good governance standards that Member States comply with themselves. These are:
- Transparency: The country should comply with international standards on automatic exchange of information and information exchange on request. It should also have ratified the OECD’s multilateral convention or signed bilateral agreements with all Member States, to facilitate this information exchange. Until June 2019, the EU only requires two out of three of the transparency criteria. After that, countries will have to meet all three transparency requirements to avoid being listed.
- Fair Tax Competition: The country should not have harmful tax regimes, which go against the principles of the EU’s Code of Conduct or OECD’s Forum on Harmful Tax Practices. Those that choose to have no or zero-rate corporate taxation should ensure that this does not encourage artificial offshore structures without real economic activity. They should therefore introduce specific economic substance requirements and transparency measures.
- BEPS implementation: The country must have committed to implement the OECD’s Base Erosion and Profit Shifting (BEPS) minimum standards. From 2019, jurisdictions are being monitored on the implementation of these minimum standards, starting with Country-by-Country Reporting.
What are the sanctions that the Member States will apply at national level to the blacklisted countries?
In addition to the EU provisions, Member States agreed on sanctions to apply at national level against the listed jurisdictions. These include measures such as increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions.
The Commission is urging Member States to step up their efforts to agree on strong, binding and coordinated defensive measures, as soon as possible, to give the EU list an even greater impact.
The Commission will continue to support Member States’ work to develop a more coordinated approach to sanctions for the EU list in 2019. In addition, new provisions in EU legislation prohibit EU funds from being channeled or transited through entities in countries on the tax blacklist.
Which are the countries included in the updated EU list of non-cooperative tax jurisdictions?
After screening performed by the Commission, the ministers adopted a resolution for including 15 countries in the blacklist. Five of them have taken no commitments since the first blacklist were adopted in 2017.
Those countries are American Samoa, Guam, Samoa, Trinidad and Tobago, and US Virgin Islands.
Three other countries were on the 2017 list but were moved to the grey list after engaged to perform the necessary reforms and improvements for the purpose of compliance with the criteria for good governance. These countries had to be blacklisted again due to the non-fulfillment of the undertaken commitments.
These countries are Barbados, Unites Arab Emirates and Marshall Islands.
A further seven countries were moved from the grey list to the blacklist for the same reason: Aruba, Belize, Bermuda, Fiji, Oman, Vanuatu and Dominica.
Which are the next steps to be undertaken?
The EU listing process is currently a dynamic one, which will continue in the years ahead.
- A letter will be sent to all jurisdictions on the EU list, explaining the resolution and what they can do to be de-listed.
- The Commission and the Member States (Code of Conduct Group) will continue to monitor the jurisdictions which have to perform their commitments until the end of 2019/2020. They will also assess whether any other countries should be included in the EU listing process.
- The Commission will continue the open dialogue and engagement with the jurisdictions concerned, to provide technical support and clarifications whenever needed and to discuss any tax matters of mutual concern.