- The blacklist includes 17 jurisdictions that fail criteria on transparency, fair taxation or combating base erosion.
- Another 47 jurisdictions committed to reform their systems and remain under monitoring.
- For companies and families with an international presence, where and why they hold structures matters.
On 5 December 2017 the Council of the European Union, meeting as economy and finance ministers, adopted the EU’s first list of non-cooperative jurisdictions for tax purposes. It includes 17 jurisdictions, among them Panama, the United Arab Emirates, South Korea and Tunisia, which meet neither the European criteria nor have committed to correcting them.
Another 47 jurisdictions, which also did not meet all the criteria but committed to correcting them, were placed in an annex subject to monitoring. The criteria are tax transparency, fair taxation, that is, the absence of harmful tax regimes, and the application of measures against base erosion and profit shifting, known as BEPS. The list assesses only countries outside the EU: Member States fall outside its scope.
What this list is and is not
The European list is distinct from the national tax haven lists each country keeps, such as Spain’s own, and replaces none of them. It is an instrument of political pressure and coordination: it seeks to get third countries to improve their transparency and tax regimes, and gives Member States a common basis to act against those that do not. The drawing-up process was long: the Commission screened dozens of countries and asked for commitments from those that did not meet the criteria.
Possible defensive measures, such as stricter controls, withholding taxes or limits on the deductibility of payments to those jurisdictions, depend largely on each Member State and its legislation; the list in itself creates no new taxes for any taxpayer. Even so, it is a signal that administrations and financial institutions will take into account in their risk analyses.
Practical effects
For companies with operations or subsidiaries in listed jurisdictions, the main risk is greater scrutiny: more questions from banks and the tax authority, the need to justify the economic substance and purpose of each transaction, and possible restrictions on the deductibility of certain payments if States adopt defensive measures.
For families with investments, companies or accounts in those countries, the list reinforces an already familiar trend: international transparency is advancing and structures that once relied on opacity are no longer sustainable. After the publication of the Paradise Papers a month earlier, the issue occupies a central place on the European political agenda. For those who already comply with their reporting obligations, the practical effect is limited; for those who do not, the risk increases.
What to review
It is worth checking whether any of your structures, accounts or subsidiaries is in a listed jurisdiction or one of those that have made commitments, and what economic reason justifies it. If your company pays interest, royalties or services to entities in those territories, review the transfer pricing documentation and the deductibility of the payments. It is also worth having to hand the contracts and invoices that prove the reality of the services provided by entities in those jurisdictions.
It is also useful to follow updates to the list, which the EU plans to review and which can change as countries meet their commitments. A territory that appears today may leave soon, and vice versa. And for any decision, remember that what matters is not a country’s label but substance, transparency and compliance with reporting obligations, which are what protect your assets. An adviser can help you decide whether to reorganise a structure, keep it with better documentation or close it.
The list changes, but the criterion remains: economic substance, transparency and declaration.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
