Russia is added to the list of non-cooperative tax jurisdictions of the European Union known as the “black list” of the European Union and the case of Cyprus

The European Union announced that it had added the British Virgin Islands, Costa Rica, the Marshall Islands, and Russia to its list of non-cooperative jurisdictions for tax purposes known as the “European Union blacklist”. The “blacklist” of the European Union is now structured as follows:

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

Impact of companies located in these countries

The European Union has published guidelines for defensive measures against these non-cooperative jurisdictions with sham regimes such as the existence of tax regimes that facilitate offshore structures that attract profits without actual economic activity. Therefore, the Member States are committed, from January 1, 2021, to apply at least one of the four special legislative measures below:

  1. Non-deductibility of expenses incurred in an entity of such jurisdiction
  2. Controlled Foreign Companies rules (CFC rules)
  3. Withholding tax measures
  4. Limitation of tax exemption from participating in shareholders’ dividends

Many Member States have already moved to enact or legislate such defense measures

Reference should also be made to the reporting obligations deriving from the European Union’s DAC 6 mandatory disclosure rules which require the disclosure of cross-border arrangements where the recipient of the payment is a tax resident in a jurisdiction listed in the “black list” of the European Union.

The Case of Cyprus

From 31 December 2022, Cyprus applies a withholding tax of 17% on dividends paid by unlisted companies, 30% on passive interest payments (excluding payments from natural persons), and 10% on royalty and similar payments (excluding payments from natural persons) if the recipient of the payment is a company in a jurisdiction included in the European Union’s list of non-cooperative jurisdictions in tax matters (European Union’s “black list”).

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