Summary of Updates
- The European Union has updated its blacklist of non-cooperative tax jurisdictions.
- The British Virgin Islands, Costa Rica, and the Marshall Islands have been removed from the list.
- New additions to the blacklist include Belize, Seychelles, and Antigua & Barbuda.
- Implications: EU-based companies (e.g., those in Cyprus) making payments to blacklisted jurisdictions will face a withholding tax.
Details of the EU Decision
On October 17, 2023, the European Council decided to add Belize, Seychelles, and Antigua & Barbuda to its list of non-cooperative countries for tax purposes. Concurrently, the British Virgin Islands, Costa Rica, and the Marshall Islands were removed from this list.
Reasons for Removal and Addition
- The British Virgin Islands: Removed after revising their information exchange framework, first listed on February 14, 2023.
- Marshall Islands: Delisted following significant progress in implementing economic substance standards.
- Costa Rica: Removed due to reforms in its foreign source income exemption system.
- Belize, Seychelles, and Antigua & Barbuda: Added for reasons not specified in the provided text.
Current Non-Cooperative Jurisdictions as of October 17, 2023
The updated blacklist includes American Samoa, Antigua and Barbuda, Anguilla, Bahamas, Belize, Fiji, Guam, Palau, Panama, Russia, Samoa, Seychelles, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands, and Vanuatu.
Tax Implications for Cyprus
Cyprus generally does not impose withholding taxes on payments to non-residents. However, payments to entities in blacklisted jurisdictions incur withholding taxes: 17% on dividends by non-quoted companies, 30% on interest (excluding individual payments), and 10% on royalties (excluding individual payments). While the exclusion of the BVI is a positive development, as many Cyprus structures were historically set up with BVI holding companies, the inclusion of Seychelles and Belize is especially problematic due to the frequency of use in Cyprus structures.
Options for Affected Transactions
For transactions negatively impacted by this update, suspending payments or changing the jurisdiction of the beneficial shareholder of the Cypriot company (e.g., through re-domiciliation or share transfer) could be considered.
The choice of "offshore" jurisdiction must be considered carefully at the onset of the planning stage when a foreign structure is being set up, irrespective of the reasons for its establishment- be it tax, asset protection, or other reasons. A competent international tax advisor can help you navigate these complexities, and identify and clearly communicate all risks involved with offshore structures.
DAC6 Reporting Implications
This amendment might affect DAC6 reporting, particularly concerning deductible cross-border payments to recipients in blacklisted jurisdictions. Entities in Cyprus dealing with newly blacklisted jurisdictions should assess potential DAC6 reporting requirements.
The EU Council's criteria, established in 2017, assess jurisdictions based on fair taxation, tax transparency, and adherence to international standards against profit shifting and tax base erosion. The EU Head of the Code of Conduct group conducts discussions with international organizations and authorities as needed.
Jurisdictions that find themselves on the EU's list of non-cooperative tax jurisdictions are typically those that have either failed to engage effectively in discussions with the EU regarding tax governance or have not met their commitments to implement the necessary reforms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.