European Council expands list of non-cooperative jurisdictions

The Economic and Financial Affairs Council (ECOFIN) of EU finance minsters announced, on 18 February, that it was moving the Cayman Islands, Palau and the Seychelles from its ‘grey list’ to its ‘black list’ of non-cooperative jurisdictions for tax purposes due to their failure to implement tax reforms to which they had committed by an agreed deadline. Panama was further added to the black list.

They join the eight jurisdictions – American Samoa, Fiji, Guam, Samoa, Oman, Trinidad & Tobago, Vanuatu and US Virgin Islands – that were previously blacklisted and which were found to still be non-compliant based on recommendations made by the EU Code of Conduct Group for Business Taxation.

The list of non-cooperative tax jurisdictions was first established in December 2017. Under the EU listing process, jurisdictions are assessed against three main criteria – tax transparency, fair taxation and real economic activity. Those that fall short on any of these criteria are asked for a commitment to address the deficiencies within a set deadline and are listed under Annex II of the conclusions – the ‘grey list’ – which covers jurisdictions with pending commitments. When a jurisdiction has met all its commitments, it is removed from Annex II.

Most commitments taken by third country jurisdictions were with a deadline of end 2019 and implementation was monitored by the EU Code of Conduct Group on business taxation. Following the latest review, deadline extensions were granted to 12 jurisdictions to enable them to pass the necessary reforms to deliver on their commitments. Most of the deadline extensions concern developing countries without a financial centre that have already made meaningful progress in the delivery of their commitments.

Under the transparency criteria, Turkey was granted until 31 December 2020 to make tangible progress in the effective implementation of the automatic exchange of information with all EU Member States. Anguilla, Botswana and Turkey, which had all committed to have a sufficient rating in relation to exchange of information on request by the end of 2018, are all awaiting a supplementary review by the OECD Global Forum.

The following developing countries, that do not have a financial centre and were found to have made meaningful progress in the delivery of their commitments, were granted until 31 August 2020 to sign the OECD Multilateral Convention on Mutual Administrative Assistance (MAC) and until 30 August 2021 to ratify the MAC – Bosnia & Herzegovina, Botswana, Eswatini, Jordan, Maldives, Mongolia, Namibia and Thailand.

Under the ‘fair taxation’ criteria, Saint Lucia had committed to amend or abolish its foreign source income exemption regime by the end of 2019. It was found to have adopted sufficient amendments in line with its commitments and had committed to address a remaining issue by 31 August 2020.

Australia and Morocco had committed to amend or abolish their harmful tax regimes by end 2019 but were prevented from doing so by a delayed process in the OECD Forum on Harmful Tax Practices. They have been granted until the end of 2020 to adapt their legislation.

Namibia has committed to amend or abolish its harmful tax regimes covering manufacturing activities and similar non-highly mobile activities by the end of 2019. It was found to have demonstrated tangible progress in initiating these reforms in 2019 and was granted until 31 August 2020 to adapt its legislation. Jordan has also committed to amend or abolish harmful tax regimes by the end of 2020.

A further 16 jurisdictions – Antigua & Barbuda, Armenia, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cabo Verde, Cook Islands, Curaçao, Marshall Islands, Montenegro, Nauru, Niue, St Kitts & Nevis and Vietnam – managed to implement all the necessary reforms to comply with EU tax good governance principles ahead of the agreed deadline and have therefore been removed from Annex II.

Croatian Deputy Prime Minister and Minister of finance Zdravko Marić said: “The work on the list of non-cooperative tax jurisdictions is based on a thorough process of assessment, monitoring and dialogue with about 70 third country jurisdictions. Since we started this exercise, 49 countries have implemented the necessary tax reforms to comply with the EU’s criteria. This is an undeniable success. But it is also work in progress and a dynamic process where our methodology and criteria are constantly reviewed.”

ECOFIN will continue to review and update the list in the coming years, taking into consideration the evolving deadlines for jurisdictions to deliver on their commitments and the evolution of the listing criteria that the EU uses to establish the list.

ECOFIN produced a guidance on further coordination of national defensive measures in the tax area towards non-cooperative jurisdictions in December 2019. It invited all member states to apply legislative defensive measure in taxation vis-à-vis the listed jurisdictions as of 1 January 2021, with the aim of encouraging those jurisdictions’ compliance with the Code of Conduct screening criteria on fair taxation and transparency.

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