EU updates list of non-cooperative tax jurisdictions

On 18 February 2020 the EU Finance Ministers updated the EU list of non-cooperative tax jurisdictions. Four countries or territories -Cayman Islands, Palau, Panama and Seychelles- have been added to the list of non-cooperative tax jurisdictions. These jurisdictions join US Samoa, Fiji, Guam, Samoa, Oman, Trinidad and Tobago, Vanuatu and US Virgin Islands that were already on the list.

Tax implications in the Netherlands
The Netherlands has a blacklist for jurisdictions without a statutory profit tax and states with a statutory profit tax rate of less than 9%. The Dutch blacklist also includes non-cooperative jurisdictions identified by the EU. The effects of being on the Dutch blacklist are:

1. the application of controlled foreign company (CFC) rules effective 1 January 2019 (subject to certain conditions);
2. the non-eligibility for obtaining an advance tax ruling when in a transaction or corporate structure a Dutch blacklisted jurisdiction is involved as from 1 July 2019; and
3. the application of the withholding tax of 21.7% on interest and royalty directly or indirectly paid to subsidiaries or permanent establishments that will be introduced as from 1 January 2021. 

In 2020, the Dutch blacklist includes Anguilla, Bahama’s, Bahrain, Barbados, Bermuda, British Virgin Islands, Fiji, Guernsey, Guam, Isle of Man, Jersey, Cayman Islands, Oman, Samoa, Trinidad and Tobago, Turkmenistan, Turks and Caicos Islands, the United Arab Emirates, the US Virgin Islands, US Samoa and Vanuatu.

If Cayman Islands, Palau, Panama and Seychelles will remain on the EU list of non-cooperative tax jurisdictions during the remainder of 2020, they will (remain to) be included in the Dutch blacklist for the entire year 2021 when the annual revisit of the Dutch blacklist effective the following calendar year takes place.

Tax implications in Luxembourg
Differently from the Netherlands, Luxembourg does not have a domestic list of non-cooperative tax jurisdictions. Instead, a Luxembourg administrative circular (L.G. A No 64 of 7 May 2018, hereinafter the Circular) provides certain defensive measures that apply to countries or jurisdictions included in the EU list of non-cooperative tax jurisdictions.

As per the Circular, the Luxembourg tax administration (LTA) will pay special attention on transactions carried out by Luxembourg corporate taxpayers with related parties located in non-cooperative tax jurisdictions.

For that purpose, Luxembourg corporate taxpayers are required to report in their annual tax return whether they carry out transactions with related parties located in non-cooperative tax jurisdictions.

If that is the case, as per the Circular, Luxembourg corporate taxpayers should have the following information available in case of request from the LTA:

1. information about the amount of income and expenses derived from transactions with related parties located non-cooperative tax jurisdictions;
2. information about receivables and payables with related parties located in non-cooperative tax jurisdictions.

In addition to having the information above available to the LTA, it is important that Luxembourg corporate taxpayers are able to demonstrate that their transactions with related parties located in non-cooperative tax jurisdictions comply with the arm’s length principle.