British Virgin Islands added to EU blacklist

The British Virgin Islands have been added to the EU's blacklist of non-cooperative jurisdictions following a meeting of EU finance ministers held on Tuesday 14 February 2023. The Council announced that four jurisdictions, including the British Virgin Islands, are added to the list of non-cooperative jurisdictions for tax purposes.

Blacklisted countries may be subjected to a number of administrative measures by EU Member States, though in the short term the impact is not likely to be significant.

Background

In December 2017, following work of the EU Code of Conduct Group on Business Taxation, the EU Council adopted an EU list of non-cooperative jurisdictions for tax purposes, which were set out in an Annex to its conclusions. The Annex contained a black list of non-cooperative jurisdictions but also a grey list containing a number of different lists of jurisdictions in relation to which the EU Code of Conduct Group identified concerns during its screening process. The jurisdictions identified on the grey list all committed to address these concerns by introducing relevant changes in their tax legislation in order to comply with the EU criteria. It was expected that most grey list jurisdictions would implement the necessary changes by the end of 2018.

When it first published the list, the Council agreed to put on hold a screening of the tax systems of Caribbean jurisdictions that were struck by hurricanes in September 2017. The process was restarted in January 2018 and the British Virgin Islands was added to the grey list in March 2018 on the basis of commitments made to address deficiencies identified by the EU.

The EU Council has now decided to add the British Virgin Islands to the black list of overseas tax territories that do not effectively co-operate with the EU, joining American Samoa, Anguilla, the Bahamas, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands and Vanuatu. Costa Rica, the Russian Federation and the Marshall Islands have also been added to the list.

The Conclusions from the meeting state that the British Virgin Islands has been added to the blacklist “as it does not have a rating of at least “Largely Compliant” by the Global Forum for exchange of information on request”.

Impact of black listing

Member States are encouraged to apply additional administrative measures for tax purposes to transactions or structures involving jurisdictions on the black list. In addition, financing from the European Fund for Sustainable Development is not available to such jurisdictions and further defensive measures are likely to be added in the future. In particular, a December 2019 ECOFIN meeting recommended at least one from a series of additional defensive measures should be adopted by Member States from 2021, such as denying a deduction for costs and payments directed to entities or persons in a black listed jurisdiction, applying additional or higher withholding taxes, applying CFC rules or limiting the benefits of a participation exemption for payment from subsidiaries in black listed jurisdictions. For further details, see EU black list: further defensive measures recommended.

For example, the Netherlands has introduced measures which target blacklisted jurisdictions, including applying new CFC rules to entities in these jurisdictions, denying Dutch tax ruling to entities in these jurisdictions and imposing (from 2021) a withholding tax on interest and royalty payments to these jurisdictions.

Blacklisting may also impact upon the requirements under DAC 6 to report deductible payments made to associated enterprises in the British Virgin Islands.

Further details

For further details of the EU black list and grey list, see EU list of non-cooperative jurisdictions for tax purposes updated and the EU Council website.