The Bahamas added to EU tax grey list
On February 24, 2022, the Council of the EU adopted conclusions on the state of play with respect to commitments taken by cooperative jurisdictions to implement tax good governance principles (Annex II – so called “grey list”).
The Council agreed to add The Bahamas, Belize, Bermuda, the British Virgin Islands, Israel, Monserrat, the Russian Federation, Tunisia, Turks and Caicos Islands and Vietnam to the grey list.
Following this latest revision, the grey list includes the following twenty-five jurisdictions: Anguilla, The Bahamas, Barbados, Belize, Bermuda, Botswana, the British Virgin Islands, Costa Rica, Dominica, Hong Kong, Israel, Jamaica, Jordan, Malaysia, Montserrat, North Macedonia, Qatar, Seychelles, Thailand, Tunisia, Turkey, Uruguay, Russian Federation, Turks and Caicos Islands, Vietnam.
No jurisdictions were added to or removed from the list of non-cooperative jurisdictions (Annex I).
The EU list of non-cooperative jurisdictions, first adopted in the Council conclusions of December 5, 2017, as part of the EU’s efforts to clamp down on tax avoidance and harmful tax practices. Out of the ninety-two jurisdictions initially chosen for screening, seventeen jurisdictions were placed on the list in December 2017. Since then, in light of commitments made by listed jurisdictions to comply with the EU’s criteria, both Annex I (the EU list of non-cooperative jurisdictions) and Annex II / the EU tax grey list (jurisdictions whose commitments to comply with EU standards are being monitored) to the Council conclusions were amended several times.
With regard to tax regimes that facilitate offshore structures which attract profits without real economic activity (criterion 2.2), the Council agreed, in its conclusions of December 9, 2020, that the Commission services should work with the Secretariat of the OECD Forum on Harmful Tax Practices (FHTP) for a coordinated monitoring under the FHTP global standard on substantial activities for no/nominal tax jurisdictions. The global standard requires mobile business income in a low tax jurisdiction to be linked to core business functions being carried out from that jurisdiction. Furthermore, the global standard ensures that the jurisdictions of the parent entities and beneficial owners are informed about the identity, activities and ownership chain of entities established in no or only nominal tax jurisdictions that are either non-compliant with economic substance requirements or engage in intellectual property or other high-risk activities through a regular information exchange.
Furthermore, in its conclusions of December 7, 2021, the Council approved the preparatory work done by the CoCG with respect to the assessment of relevant jurisdictions for compliance with CbCR requirements (criterion 3.2) (in light of the February 2022 update of the list of non-cooperative jurisdictions). The general approach for the assessment comprises two main elements:
- Jurisdictions should have arrangements (multilateral or bilateral qualifying competent authority agreement) in place to exchange CbCR reports with all Member States with whom they already have an international agreement in effect (MAC or bilateral Double Tax Convention / Tax Information Exchange Agreement that provides for the automatic exchange of tax information).
- Jurisdictions should have been assessed positively in the BEPS Action 13 peer review report by the OECD BEPS Inclusive Framework (IF).
Following the latest update to the EU tax grey list, The Bahamas was added to section 2.2 of Annex II as a result of commitments to implement the FHTP’s global standard on Economic Substance activities. The report notes that the CoCG sent a letter to The Bahamas requesting a commitment to remedy failures of meeting one or more of the requisite standards within the timeline agreed in the context of the FHTP assessment.
The Bahamas was also added to section 3.2 of Annex II. Based on the IF peer review report of October 2021, in November and December 2021, the CoCG sent a letter to The Bahamas, requesting a commitment to address any IF general recommendations on time to be reflected in the IF peer review reports in 2023 and, where necessary, to activate exchange relationships with EU Member States in due time.
- What does being on the grey list mean? It means that the CoCG will continue to monitor The Bahamas, under consideration of FHTP assessments. However, no sanctions should be imposed on The Bahamas or entities doing business in and through The Bahamas as no sanctions and no other grey or black lists, as far as we are aware, are linked to Annex II.
- When will The Bahamas be removed from the grey list? The answer to this question is dependent on The Bahamas remediating the issues which have been identified by the CoCG. The ECOFIN will next consider updates to the list in October 2022. Subject to The Bahamas remediating the issues identified by then, it should be removed from the grey list.
- What happens if The Bahamas does nothing in relation to meeting the requirements? The Bahamas will likely be added to Annex I – list of non-cooperative jurisdictions (i.e. black list) – which means all the known sanctions will apply to The Bahamas and entities doing business in and through The Bahamas. Many jurisdictions have a black list running in parallel but which is linked to the EU black list and, therefore, The Bahamas would also be included on such lists.
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