On 14 February, the EU Council added four jurisdictions (the British Virgin Islands, Costa Rica, Marshall Islands and Russia) to the list of non-cooperative jurisdictions (Annex I) (the “EU Blacklist”).

The list of non-cooperative jurisdictions was established in December 2017 and covers countries that have not engaged in constructive dialogue on tax governance or have failed to deliver on commitments to implement necessary reforms, which deal with tax good governance criteria including tax transparency, fair taxation and the implementation of standards to prevent tax base erosion and profit shifting.

The EU Council gave the following reasons for the addition of each of these jurisdictions:

• The British Virgin Islands was found not to be sufficiently in compliance with the OECD standard on exchange of information on request.
• Costa Rica had not fulfilled its commitment to abolish or amend the harmful aspects of its foreign source income exemption.
• Marshall Islands gave rise to concerns that the jurisdiction is attracting profits without real economic activity given its zero or only nominal rate of corporation tax.
• Russia was found to have not fulfilled its commitment to address the harmful aspects of a special regime for international holding companies. In addition, dialogue with Russia on taxation matters came to a standstill following the Russian aggression against Ukraine.

The EU Blacklist is next due to be updated in October 2023.

The expansion of the EU Blacklist will be relevant in so far as jurisdictions have implemented “defensive measures” (additional monitoring and legislative measures such as non-deductibility of costs, controlled foreign company rules to limit artificial deferral, withholding tax measures and limitation of the participation exemption on shareholder dividends). 

In addition, the EU Council also approved the “state of play” document (Annex II) (the “EU Grey List”) with the following updates:

• Barbados, Jamaica, North Macedonia and Uruguay were removed from the document having fulfilled their commitments.
• Hong Kong and Malaysia were granted an extension to reform their foreign source income exemption regimes relating to capital gains.
• Qatar was also granted an exemption owing to constitutional reform constraints.
• Aruba and Curaçao committed to improving their Global Forum determinations as regards the automatic exchange of information. (Belize and Israel also made this commitment but featured in Annex II for other reasons).
• Albania committed to amend or abolish its potentially harmful regime.

The EU Grey List reflects the ongoing EU cooperation with jurisdictions to reform their legislation to adhere to agreed tax good governance standards.