The EU has added four jurisdictions to its "blacklist" of non-cooperative jurisdictions as of February 18, 2020:

• The Cayman Islands for not having appropriate measures in place to address economic substance requirements for collective investment vehicles by the end of 2019
• Palau for failing to implement any automatic exchange of financial information measures within the agreed deadline
• Panama for failing to obtain at least a "Largely Compliant" rating from the Global Forum on Transparency and Exchange of Information for Tax Purposes for Exchange of Information on Request.
• Seychelles for not addressing issues related to harmful preferential tax regimes.

Blacklist update

There are ramifications for being on the blacklist. The EU Council has asked member states to implement at least one of the following defensive measures against non-cooperative jurisdictions: non-deductibility of costs, withholding tax measures, controlled foreign company rules, limitation of participation exemption on profit distribution or administrative measures. Not only that, jurisdictions named on the EU blacklist may face sanctions, including ineligibility for certain EU funding.

Also, if the recipient of a cross-border payment made between associated enterprises is resident in a jurisdiction on the blacklist, specific reporting rules under the EU Mandatory Disclosure requirements are applicable.

The blacklist now includes twelve jurisdictions:

• The Cayman Islands
• Palau
• Panama
• Seychelles
• American Samoa
• Fiji
• Guam
• Oman
• Samoa
• Trinidad and Tobago
• The U.S. Virgin Islands
• Vanuatu

Background

The EU blacklist is part of the EU's effort to clamp down on tax avoidance and harmful tax practices. The EU assesses jurisdictions against three main criteria when determining whether a particular jurisdiction is listed – tax transparency, fair taxation and real economic activity. When the list was first adopted on December 5, 2017, seventeen jurisdictions were blacklisted. Since then, the EU has revised its list multiple times.

The blacklist now includes twelve jurisdictions, with a further thirteen "grey list" jurisdictions which must follow-through on commitments to comply with the EU's criteria in 2020 to avoid being moved to the blacklist.

Grey list

The EU has also removed sixteen jurisdictions from its "grey list", finding that they had fulfilled their commitments to comply with the EU criteria by the end of 2019.

The grey list continues to include:

• Anguilla
• Australia
• Bosnia and Herzegovina,
• Botswana
• Eswatini
• Jordan
• Maldives
• Mongolia
• Morocco
• Namibia
• Saint Lucia
• Thailand
• Turkey

Future updates

The EU says it will update its blacklist twice per year going-forward, at the most. The next update is scheduled for October, 2020.

For more information, contact your KPMG advisor.

Information is current to February 25, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500