A revision of the so-called "blacklist" of non-cooperative jurisdictions was recently adopted by the EU Council. The revision may have tax consequences for Danish companies that still operate in the listed jurisdictions, including Russia.
The EU is working on an ongoing basis to discourage the use of tax havens and to fight tax evasion and tax avoidance. One of the measures taken is to draw up a common EU list of non-cooperative jurisdictions for tax purposes (EU's blacklist).
Denmark has introduced special tax rules related to jurisdictions on the blacklist. The rules include (i) non-deductibility in Denmark for payments to related entities that are resident (or registered) for tax purposes in a blacklisted jurisdiction, and (ii) increased withholding tax rates on dividends distributed to recipients that are resident (or registered) for tax purposes in such jurisdictions.
The rules were implemented in Denmark with effect from 1 July 2021 and initially covered the countries that were listed on the EU blacklist at that time.
The EU list of non-cooperative jurisdictions for tax purposes is revised twice a year. However, the revisions are not directly enforceable under Danish law as the Danish provisions on special tax rules for blacklisted jurisdictions must first be expanded in scope by the Danish Parliament. The Danish list of non-cooperative jurisdictions for tax purposes is in section 5H (2) of the Danish Tax Assessment Act and has been revised once since its introduction.
On 14 February 2023, the EU Council updated the blacklist, adding the British Virgin Islands, Costa Rica, the Marshall Islands, and Russia.
When the Danish list is next revised, Denmark is therefore expected to add the above jurisdictions and also to include Anguilla, the Bahamas and the Turks and Caicos Islands, which have previously been added to the EU list. The addition of Anguilla, the Bahamas and the Turks and Caicos Islands was proposed by the Danish Ministry of Taxation on 6 February 2023, when the Ministry submitted a bill for consultation dealing i.a. with this expansion.
However, the inclusion of Russia on the Danish list of non-cooperative jurisdictions has the complication that Denmark has entered into a treaty for the avoidance of double taxation with Russia, which means that the measures are unenforceable under international law against Danish companies with activities in Russia.
Denmark has previously been in a similar situation, when Trinidad and Tobago was encompassed by section 5H (2) of the Tax Assessment Act. Back then, Denmark terminated its tax treaty with Trinidad and Tobago before adding the country to the list. Whether this approach will be pursued again in the case of Russia is still unknown.
Danish companies with activities in the new countries on the list, including Russia, should, however, consider the implications for them.
We will continue to monitor developments and will be available if you need advice or have any questions.
Originally published by 09 March, 2023
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