The EU Code of Conduct Group – Business Taxation 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:
Trinidad & Tobago.
the US Virgin Islands.
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 defensive measures found to be adopted by the offending countries were presented to EU Member States and advised to take against the blacklisted members for:
Refusing 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.
In accordance with the Anti-Tax Avoidance Directive rules for controlled foreign companies including in the taxpayer company’s tax base the income of an entity resident or a permanent establishment situated in a blacklisted jurisdiction.
Employing 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.
For Member States with regulations that permit excluding or deducting shares or other profits received from overseas subsidiaries, denying or limiting these ‘participation exemptions’ if the dividends or other profits are considered to be received from a blacklisted authority.
The guidance requests Member States to apply at least one of these measures from January 1st 2021 at the latest, although it also states that Member States are permitted to employ their own additional measures or to maintain their own records of non-cooperative jurisdictions at local levels.
By December 2021, an overview of sanctions applied by Member States will take place, and as of 2022, the CCG will evaluate the need for further dexterity of defensive measures.