In February 2020, the European Union has added the Cayman Islands, Panama, Seychelles as well as Palau to its blacklist of ‘non-cooperative jurisdictions for tax purposes’.
The list now includes 12 jurisdictions (Cayman Islands, Panama, Seychelles, Palau, Oman, Samoa, Trinidad and Tobago, Vanuatu, American Samoa, Guam, and the U.S. Virgin Islands) that have either not engaged in a constructive dialogue with the EU on tax governance or failed to deliver on their commitments to implement reforms to comply with the EU’s criteria on time.
It is necessary to mention that the following measures may be applicable (by the EU itself or by Member States) to residents from blacklisted jurisdictions as recommended by the EU:
- Non-deductibility of costs;
- Controlled Foreign Company rules;
- Withholding tax measures;
- Limitation of participation exemption;
- Switch-over rule;
- Reversal of the burden of proof;
- Special documentation requirements;
- Mandatory disclosure by tax intermediaries of specific tax schemes with respect to cross-border arrangements.
Cyprus is currently considering to either deny deduction of costs and payments made to blacklisted jurisdictions and to introduce withholding tax on payments made to entities registered in those non-cooperative jurisdictions at the applicable rates being:
- 30% on interest;
- 17% on dividends; and
- 10% on royalties.
M. Target tax professionals remain at your disposal should you require any further information or clarifications on this or other tax-related matters.