On 14 February 2023, the European Union (EU) announced that it will include Russia, Costa Rica, US Virgin Islands and Marshall Islands in its list of non-cooperative jurisdictions for tax purposes (the ‘blacklist’). The blacklist now consists of the following 16 jurisdictions:
British Virgin Islands
Trinidad & Tobago
Turks & Caicos
US Virgin Islands
In practice, this will have tax implications in the future for Dutch businesses with connections to Russia, Costa Rica, US Virgin Islands or Marshall Islands.
Apart from being subject to an enhanced controlled foreign corporation (CFC) rules, it may also bring restrictions on the deductibility of certain payments made to companies in one of these jurisdictions.
Furthermore, foreign entities based in a blacklisted jurisdiction that hold shares in a Dutch entity will no longer be able to benefit from the participation exemption, which exempted them from Dutch tax until now. This relates to dividend distribution, bonus shares and hidden profit distributions, for example.
However, specific circumstances are to be observed, so an individual tax analysis is required in each case.
No immediate applicability
Since the Dutch tax rules that are applicable for the fiscal year 2023 are already established in 2022, the above-mentioned changes will be (most likely) effective starting from the fiscal year 2024.
However, the EU blacklist is scheduled to be revised in October 2023. It may be the case that some jurisdictions are taken off the list if sufficient cooperation for tax purposes is established with the EU by then.
Immediate applicability for mandatory reporting regime
Although the tax implications will not be realised until (at least) 2024, the inclusion of the 4 jurisdictions to the black list has an immediate effect on the applicability of the EU Directive 2011/16/EU (DAC 6 reporting obligations), which obliges intermediaries by cross-border arrangements executed by EU companies and/or the companies themselves to report certain transactions to the competent national authorities. The obligation to report arises where, amongst others, deductible cross-border payments are made between two or more associated enterprises and the recipient is based in a blacklisted country.
Please feel free to contact CIS Management for further information.