EU sets out sanctions against blacklisted jurisdictions

Monday, 16 December 2019
The EU Code of Conduct Group (Business Taxation) (CCG) has published new guidance on sanctions to be applied by EU Member States against blacklisted 'non-cooperative' jurisdictions by the end of 2020.

The EU blacklist has been revised several times this year, and at the latest count it contains eight jurisdictions: American Samoa, Fiji, Guam, Oman, Samoa, Trinidad and Tobago, the US Virgin Islands and Vanuatu.

All of the larger international financial centres have made strenuous efforts to be removed from the blacklist and all have succeeded, at least provisionally by giving assurances that they will come in to compliance with EU strictures. The rules are intended to curb 'harmful' tax practices.

The so-called 'defensive measures', recommended to EU Member States to take against the blacklist members, include:

  • denying deduction of costs and payments that otherwise would be deductible, when these costs and payments are treated as directed to entities or persons in blacklisted jurisdictions;
  • including in the taxpayer company's tax base the income of an entity resident or a permanent establishment situated in a blacklisted jurisdiction, in accordance with the Anti-Tax Avoidance Directive rules for controlled foreign companies;
  • applying a withholding tax at a higher rate on payments such as interest, royalties, service fee or remuneration, when these payments are treated as received in blacklisted jurisdictions; and
  • for those Member States with rules that permit excluding or deducting dividends or other profits received from foreign subsidiaries, denying or limiting these 'participation exemptions' if the dividends or other profits are treated as received from a blacklisted jurisdiction.

The guidance requests Member States to apply at least one of these measures from 1 January 2021 at the latest, although it also states that Member States are entitled to apply their own additional measures or to maintain their own lists of non-cooperative jurisdictions at the national level. By the end of 2021, an overview of sanctions applied by Member States will take place, and as of 2022, the CCG will assess the need for further coordination of defensive measures.

The report was endorsed during the Economic and Financial Affairs Council (ECOFIN) meeting of 5 December 2019.


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