EU bodies update country lists of uncooperative and high-risk countries for financial services

Thu 05 Oct 2023

Revised list of uncooperative countries and territories for tax purposes published by the European Council

The list of uncooperative countries and territories about tax is an important part of the external tax strategy of the EU. Globally, this strategy intends to contribute to the ongoing efforts to advance good governance practices in the tax domain.

While formulating the list, countries and territories are assessed based on the standards set by the Council. These criteria include tax transparency, fairness, and international standards to prevent base erosion and transfer pricing. Moreover, updating the list while considering all the set criteria remains a dynamic and cumbersome process.

With four new jurisdictions, the recent update to the list of countries and territories deemed uncooperative for tax purposes now includes 16 entities. The new entities added to the list are Russia, Costa Rica, Marshall Islands and the British Virgin Islands.

Russia’s failure to enforce a stronger framework for companies having holdings internationally, coupled with the hindrance of tax-related dialogues due to its act of aggression against Ukraine, stands as a prominent factor contributing to its designation on the list. Similarly, Costa Rica’s negligence to abolish or modify its exemption regime about foreign-source income has been the driver for its listing.

Moreover, corporate tax pertaining to Marshall Island remains nearly zero while the area continues to serve as a tax haven for foreign entities, enabling it to attract profit without conducting any real economic activity, and thus serving as a prominent reason for its inclusion. Furthermore, British Virgin Island incorporation remains due to its inadequate compliance with OECD standards regarding information exchange on request.

European Commission updates list of high-risk third-country jurisdictions

The European Commission has updated the list of third countries which have strategic differences in their policies towards combating anti-money laundering and financing terrorism (AML/CFT), to limit their exposure to a single market.

This list takes into consideration information provided by the Financial Action Task Force (FATF). At its last plenary session, FATF reviewed the list of countries under its stringent supervision. Furthermore, additional updates to the list have been made by The European Commission, by the prerogatives of article nine of the fourth anti-money laundering directive.

According to the updates made to the list, a total of 27 countries are high-risk third-country jurisdictions.

After undergoing amendments and comprehensive study, the list can come into force if it does not encounter any objections from both the European Parliament and the Council. The implementation of the list comes within one month of its approval, with a possible extension of up to four months. Notably, countries such as Cambodia and Morocco have been eliminated from the list, while South Africa and Nigeria have been newly incorporated.