On 14 February 2023, the Council of the European Union revised the EU list of non-cooperative jurisdictions for tax purposes by adding Russia, the British Virgin Islands, Costa Rica and Marshall Islands. Following these additions, the EU list now includes 16 jurisdictions.
For more information regarding the decision of the EU Council and a full list of these 16 jurisdictions, you may click here.
The EU list includes jurisdictions that have not managed to engage in a constructive dialogue with the EU on tax governance, or have failed to deliver on their commitments to implement specific reforms aiming towards tax good governance, which include tax transparency, fair taxation and implementation of international standards designed to prevent tax base erosion and profit shifting.
In the case of Russia, it was effectively concluded that it has not fulfilled its commitment to address the harmful aspects of a preferential tax regime for international holding companies. In addition, dialogue with Russia on matters related to taxation came to a standstill following the current situation between Russia and Ukraine.
In the case of the British Virgin Islands, the reason sighted for inclusion in the list is not being sufficiently in compliance with the OECD standard on exchange of information on request (specifically, it does not have a rating of at least “largely compliant”). The government of the BVI has disclosed via a statement in its official website that it has requested for a supplementary review to be granted by the OECD Global Forum that will more accurately reflect the BVI’s current legislative status, and that will approve the reinstatement of the “largely compliant” rating (thus achieving its removal from the EU list).
IMPORTANT CYPRUS TAX IMPLICATIONS
Whereas Cyprus does not generally impose withholding tax on payments to non-Cyprus residents, it is being reminded that certain types of payments to countries included in Annex I of the EU list of non-cooperative jurisdictions on tax matters will be subject to Cyprus withholding tax. Specifically, in such cases, payments of dividend, interest and royalties made by Cypriot tax residents to corporate taxpayers located on this list shall be subject to withholding tax at 17%, 30% and 10% respectively.
Potential client actions:
For cases which are adversely affected by the measure of the withholding tax introduction (e.g. because the corporate beneficial shareholder of the Cyprus company is on this list), it may be considered to change the jurisdiction of the beneficial shareholder of the Cyprus company to another jurisdiction. This could for example be effected by way of redomiciliation or transfer of shares. Please contact us for any assistance that may be needed in this respect.
In the case of the British Virgin Islands (BVI), we believe that it may be a matter of time before BVI is removed from this list. In the meantime, affected clients may wish to consider delaying the actual payment of dividends, interest or royalties from a Cyprus company towards a BVI company.
IMPORTANT DAC6 IMPLICATIONS
Moreover, the revision of the list may have DAC6 reporting implications, specifically with regards to the Hallmark concerning deductible cross-border payments where the recipient is tax resident in a jurisdiction included in the EU list. Cypriot entities engaged in activities with any of the newly-listed jurisdictions would be well-advised to consider potential DAC6 reporting implications (click here for more details).