British Virgin Islands, Costa Rica, Marshall Islands and Russia added to EU list of non-cooperative jurisdictions for tax purposes

The Council of the European Union decided on 14 February 2023 to add the British Virgin Islands, Costa Rica, Marshall Islands and Russia to the EU list of non-cooperative jurisdictions for tax purposes. With these additions, the EU list now consists of 16 jurisdictions:

• American Samoa
• Anguilla
• The Bahamas
• British Virgin Islands
• Costa Rica
• Fiji
• Guam
• Marshall Islands
• Palau
• Panama
• Russia
• Samoa
• Trinidad and Tobago
• Turks and Caicos Islands
• US Virgin Islands
• Vanuatu

The related press release can be found here.

What consequences in Luxembourg?

EU taxpayers engaged in intragroup transactions with related parties located in these jurisdictions should assess the impact of their inclusion in the EU list. In Luxembourg, for instance, the following consequences should be taken into account:

1. Non-deductibility of interest and royalties accruing to a related party located in one of these jurisdictions, unless the taxpayer provides evidence that the transaction was made for valid business reasons that reflect the economic reality. For the four newly-added jurisdictions, this provision will be applicable as from 1 January 2024.
2. DAC 6 event under Hallmark C1 related to “cross-border transactions”: Under DAC 6, intermediaries or taxpayers are required to disclose to the tax authorities cross-border arrangements that meet specific features considered as potentially aggressive tax planning, known as “hallmarks”. For instance,  Hallmark C1(b)(ii) is met when cross-border deductible payments are made to a related party established in a jurisdiction included in the EU list of non-cooperative jurisdictions for tax purposes, irrespective of whether tax was the main benefit of such transaction (no main benefit test applies for this specific hallmark).
3. Reporting by the taxpayer of its intragroup transactions with one of these jurisdictions (as per the latest EU list available at year-end) in its tax returns, which will be under increased scrutiny by the Luxembourg tax authorities.

The B&R tax team is at your disposal to guide you through the potential consequences of this change on your structures and investments.