While the black list of the offshore companies is only being approved, the European Union is actively discussing the economic sanctions in relation to the jurisdictions that will fall into its final version. We remind that the idea to draw up such a list arose early in the beginning of the last year with the purpose of counteracting the removal of profits from taxation and supporting the “fair tax system in the EU and in the world”. According to the criteria approved at the end of 2016, the countries and territories with “weak tax transparency”, preferential tax treatment and no income tax will be included in the black list. In order to avoid being included into the list, the jurisdiction must meet three main requirements, namely:
to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters or conclude separate agreements on the exchange of tax information with all EU Member States by December 31, 2018;
by the end of this year, to join the BEPS (Base Erosion and Profit Shifting) Plan developed by the OECD and containing recommendations on combating evasion of income tax;
to exclude the possibility of registration and operation on its territory of the enterprises created to minimize the taxes in the absence of real economic activity, and thus ensure the principle of “fair taxation”.
The “draft” version of the list of “non-cooperative jurisdictions” will be made by the end of September, after which all the EU member states must approve it. The final version, ready for official publication, will be approved by early 2018.
Meanwhile, the “punishments” that the EU states will expose the offshore are in the epicenter of the discussion. So, the countries and territories that will be included into the final version of the black list, will be imposed by the following sanctions:
higher tax rates for repatriation from income paid from the European Union to the zone from the black list or received from it;
tightening of the rules on the controlled foreign companies established in such jurisdictions;
tightening of the rules on the ownership of various costs to the category of “business expenses”;
the abolition of the exemption from taxation (the “Participation Exemption” principle) when transferring the profit of the subsidiary to the address of parent company, if the last one is located in the zone from the black list.
In addition, each EU country has the right to impose its economic sanctions on “guilty” jurisdictions.