EU update — Barbados back off the blacklist

EU update — Barbados back off the blacklist

The EU also removed Namibia, Morocco and Saint Lucia from the grey list, among other changes

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The EU moved Barbados from its blacklist of non-cooperative tax jurisdictions onto its "grey list" and added Dominica to the blacklist, following a recent update on February 22, 2021. In this update, the EU also removed Namibia, Morocco and Saint Lucia from the grey list having fulfilled all their commitments to implement tax good governance principles. Jurisdictions on the EU blacklist may face sanctions, including ineligibility for certain EU funding and more stringent reporting rules. The European Commission (EC) also recommended that EU member states should not provide COVID-19 financial relief to companies related to blacklisted jurisdictions. Further, some EU member states have introduced or proposed their own defensive measures against blacklisted jurisdictions.

Separately, European Parliament has proposed that the EC consider reforming the EU blacklist to improve transparency and efficiency of the current process.

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 implementation of international standards designed to prevent tax base erosion and profit shifting. The EU has revised its list several times since it was first published in 2017 and intends to update its blacklist a maximum of twice per year.

The EU Mandatory Disclosure requirements also include a specific reporting rule for cross-border payments between associated enterprises where the recipient is resident in an EU-blacklisted jurisdiction.

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.

The EC also recommended in July 2020 that member states should not grant COVID-19 financial support to companies with links to countries on the EU blacklist.

Blacklist changes

In its most recent update, the EU moved Barbados from the blacklist to the grey list, pending a supplemental review by the Global Forum for Transparency and Exchange of Information, and added Dominica to the blacklist after the country received a "partially compliant" rating from the Global Forum. The EU requires a jurisdiction to receive at least a "largely compliant" rating from the Global Forum to be removed from the blacklist.

Following this update, 12 jurisdictions are on the EU blacklist:

  • American Samoa
  • Anguilla
  • Dominica
  • Fiji
  • Guam
  • Palau
  • Panama
  • Samoa
  • Seychelles
  • Trinidad and Tobago
  • US Virgin Islands
  • Vanuatu

Grey list changes

The EU also tracks "grey list" jurisdictions, which identifies jurisdictions that do not yet comply with all international tax standards but which have made sufficient commitments to implement tax good governance principles. These jurisdictions are required to follow-through on these commitments to avoid being moved to the blacklist.

As part of this update, the EU removed Namibia, Morocco and Saint Lucia from the list, and added Barbados and Jamaica. The EU also extended commitment deadlines for certain other countries and noted progress made by grey list jurisdictions.

As a result, there are nine jurisdictions on the EU's grey list:

  • Australia
  • Barbados
  • Botswana
  • Eswatini
  • Jamaica
  • Jordan
  • Maldives
  • Thailand
  • Turkey

Country specific defense measures

Consistent with the EU Council's recommendations, several EU countries, including Romania, Luxembourg, Denmark and Belgium, have already introduced or proposed measures targeted at jurisdictions on the EU list, which include:

  • Non-deductibility of costs for certain payments made to companies based in a listed jurisdiction (Romania, Luxembourg, and potentially Denmark)
  • Increased withholding tax rates on dividends paid to non-cooperative jurisdictions (potentially Denmark)
  • Controlled foreign company rules and other measures (Belgium).

Germany also recently proposed to introduce defensive measures targeted at companies in blacklisted jurisdictions, and other member states are expected to follow suit.

Parliament asks for blacklist reform

European Parliament recently asked the EC and EU Council to consider reforming the EU blacklist to improve the transparency and efficiency of the current process. Specifically, Parliament requested that the EC update the listing criteria and provide a more coordinated approach to defensive measures. Parliament recognized the positive impact of the list but noted that it does not include countries with no corporate income tax, which may provide tax avoidance opportunities.

For more information, contact your KPMG advisor.

Information is current to March 1, 2021. 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

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