On February 14, 2023, the Council of the European Union (the “Council”) revised its EU list of non-cooperative jurisdictions for tax purposes (the “EU Blacklist”). The Council decided to add the British Virgin Islands, Costa Rica, Marshall Islands and Russia to the EU Blacklist.
With these additions, the EU Blacklist now consists of the following 16 jurisdictions: American Samoa, Anguilla, The Bahamas, British Virgin Islands, Costa Rica, Fiji, Guam, Marshall Islands, Palau, Panama, Russian Federation, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands, Vanuatu.
From a tax perspective the following implications may arise if a Dutch tax resident is connected with a taxpayer which is located in an EU blacklisted jurisdiction.
Mandatory Disclosure Rules / DAC6
The EU Blacklist is directly relevant for EU tax residents making cross-border payments to a related recipient which is located in a blacklisted jurisdiction. These cross-border payments have to be reported under Hallmark (C.b.ii) of the DAC6 reporting obligations.
Dutch anti-abuse measures
Furthermore, since the EU Blacklist is part of the Dutch “Regulation low-tax states and non-cooperative jurisdictions for tax purposes” (Regeling laagbelastende staten en niet-coöperatieve rechtsgebieden voor belastingdoeleinden), the EU Blacklist is relevant for the application of the Controlled Foreign Company (the “CFC”) measure and the Dutch Withholding Tax Act 2021.
The CFC-measure is intended to prevent the shifting of profits to a (low-tax) controlled foreign entity or foreign permanent establishment. A CFC exists if the Dutch taxpayer – together with an affiliated entity or natural person – has a direct or indirect interest of more than 50% in a foreign entity or permanent establishment; and the foreign entity or permanent establishment is located in a low-tax jurisdiction as appointed in the Regulation low-tax states and non-cooperative jurisdictions for tax purposes. In case of a CFC, certain ”tainted” income of the CFC is in principle included in the profits of the Dutch taxpayer.
Dutch Withholding Tax Act 2021
As of January 1, 2021 withholding tax must be withheld when an interest or royalty payment is made by a Dutch tax resident entity to an affiliated entity located in a low-tax jurisdiction as appointed in the Regulation low-tax states and non-cooperative jurisdictions for tax purposes and in situations which are considered abusive. As of Jan. 1, 2024, the scope of this withholding tax will be extended to include dividend payments to entities included on this list of low-tax states and non-cooperative jurisdictions and in situations which are considered abusive.
It is noted that the Regulation of low-tax states and non-cooperative jurisdictions for tax purposes is annually updated in December and will thus only include the additions to the EU Blacklist as per the next calendar year – provided that the EU Blacklist is not updated in the interim time period.
Further details of the EU Blacklist can be found on the Council website.
We recommend to take appropriate action and to consider restructuring activities in the situation that these newly added jurisdictions are included in your group structure. If you have any questions regarding the above, feel free to contact us.