European Union publication of the new list of non-cooperative jurisdictions – tax implications in Luxembourg
The European Union (the “EU“) list of non-cooperative jurisdictions for tax purposes was updated by the Council of the European Union which added the British Virgin Islands (the “BVI“), Costa Rica, the Marshall Islands and Russia on 14 February 2023 (the “EU Blacklist“).
Until the next revision planned for October of 2023, this EU Blacklist now includes the following 16 jurisdictions: American Samoa, Anguilla, the Bahamas, the BVI, Costa Rica, Fiji, Guam, the Marshall Islands, Palau, Panama, Russia, Samoa, Trinity and Tobago, Turks and Caicos, the U.S. Virgin Islands and Vanuatu.
The tax implications of being included on the EU Blacklist are numerous, the principal of which are set forth below.
The interest and royalties due to a related company established in a jurisdiction on the EU Blacklist are non-deductible for a paying company resident in Luxembourg.
With respect to “Country-By-Country Reporting”, tax returns for multinational companies groups including companies established in the jurisdictions on the EU Blacklist should be examined more closely by the tax authorities.
Council Directive (EU) 2018/822 of 25 May 2018 (“DAC 6“) also provides for reporting obligations, particularly when the cross-border payments are made to the benefit of a related party established in a jurisdiction on the EU Blacklist.
Finally, the General Anti-Abuse Rule implemented in Member States’ law by Directive 2016/1164 of 12 July 2016 (“Directive ATAD 1“), in order to effectively fight against abusive tax arrangements would apply to structures involving a jurisdiction mentioned on the EU Blacklist.
It is important to note that investments via Luxembourg and involving the BVI were already losing their fiscal attractiveness because of the inapplicability of the participation exemption regime and in the absence of a tax treaty between Luxembourg and the BVI. Henceforth, with the inclusion of the BVI on the EU Blacklist, investors are invited to reorganize their structure to find alternative solutions.
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