February 26, 2020 Matthew Smith

EU BLACKLIST UPDATE: ‘WHITELISTING’ FOR COOK ISLANDS AND NEVIS

BY MATTHEW SMITH – LEGAL COUNSEL

On 18 February 2020, the Council of the European Union announced further changes to its List of Uncooperative Jurisdictions for Tax Purposes (commonly known as the ‘EU Blacklist’, although it actually consists of two lists, described in further detail below). As a result, the Cook Islands and Nevis have been completely removed from the list of jurisdictions which were required to implement measures for increased tax transparency and fair taxation, having made sufficient reforms to comply with EU good tax governance principles in this area.

The Cook Islands and Nevis had previously been on included in what is known as the ‘grey list’: a secondary list of jurisdictions which had been identified by the EU as having potentially harmful tax practices, but which were engaging with the EU and had pledged to make changes to certain company and tax legislation to allay EU concerns. The Nevis Assembly has passed laws which provide for international business companies and limited liability companies to be treated in the same way as domestic entities for tax purposes from June 2021, while the Cook Islands has made similar reforms in relation to international business companies. As a result of these steps, which have gained EU approval, the Cook Islands and Nevis are now ‘whitelisted’ jurisdictions. The EU has not explicitly sought any changes in relation to trusts in either jurisdiction.

There was bad news for the Cayman Islands and Panama, however, which now find themselves included on the EU Blacklist along with other new additions Palau and the Seychelles, and eight further jurisdictions which were already blacklisted, including American Samoa, Guam and the US Virgin Islands.

There was particular surprise at the inclusion of the Cayman Islands, which has adopted more than 15 legislative changes to adhere to EU criteria since 2018 including economic substance rules. The EU Council’s report states that the Cayman Islands does not have appropriate measures in place relating to economic substance in the area of collective investment vehicles. The Cayman Islands has introduced legislative changes in this area, but this took place three days after the expiry of the deadline imposed by the EU, and it is thought this small delay has led to the jurisdiction’s blacklisting. However, theories abound in some circles that the Cayman Islands had only escaped inclusion on the Blacklist previously because it enjoyed the support of the UK, which is no longer a member of the EU Council post-Brexit.

Panama was added to the Blacklist after losing its ‘Largely Compliant’ rating from the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes.

The List of Uncooperative Jurisdictions for Tax Purposes was developed in December 2017 and has undergone frequent amendments, although will now only be revised twice annually. This means that the Cayman Islands and Panama will remain on the list until October 2020 at the earliest.

Blacklisted jurisdictions are those which have failed to achieve a rating of ‘Largely Compliant’ or better from the OECD Global Forum, which have not engaged in constructive dialogue with the EU on tax governance or which have failed to deliver on their commitments to implement reforms by agreed deadlines. The effect of blacklisting is that the affected jurisdictions are subject to enhanced reporting for certain purposes under EU legislation, lose their eligibility for some forms of EU support and are more likely to be made subject to withholding taxes or enhanced controlled foreign company rules by individual EU member states.

The EU does not assess its own members for inclusion on the List of Uncooperative Jurisdictions, despite a number of member states, including Ireland, Luxembourg, Malta and Cyprus, allowing differential taxation and base erosion and profit shifting practices which the EU has adjudged to be harmful in several of the black- and grey-listed jurisdictions.

Blacklisted countries as at 18 February 2020:

American Samoa, Cayman Islands, Fiji, Guam, Oman, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, US Virgin Islands, Vanuatu

Grey-listed countries as at 18 February 2020:

Anguilla, Australia, Bosnia & Herzegovina, Botswana, Eswatini (Swaziland), Jordan, Maldives, Mongolia, Morocco, Namibia, St Lucia, Thailand, Turkey,

Matthew Smith

Matthew Smith joined Southpac in March 2017 and works as Legal Counsel based in the New Zealand head office. Matthew is a dual-qualified attorney, having been admitted as a Solicitor of the Senior Courts of England and Wales in 2008 and as a Barrister and Solicitor of the High Court of New Zealand in 2017
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