Revised European Union’s List of Non-Cooperative Jurisdictions for Tax Purposes Revised European Union’s List of Non-Cooperative Jurisdictions for Tax Purposes Revised European Union’s List of Non-Cooperative Jurisdictions for Tax Purposes

On 5 October 2021, the European Union ("EU") issued a revised list of non-cooperative jurisdictions.

The EU Council has developed the EU list of non-cooperative jurisdictions as part of the EU’s effort in addressing tax avoidance, tax fraud and money laundering.  The list is subdivided into Annex I and Annex II.  Annex I is effectively a blacklist of jurisdictions that are considered as non-cooperative for tax purposes.  Annex II is a grey list which includes jurisdictions that have made commitments to reform tax policies but have yet to comply with all international tax standards. For Annex II, the EU will monitor developments in the listed jurisdictions and consider moving them to the blacklist if the identified harmful aspects of their tax systems do not change.

Malaysia is Now Added to the "Grey List"

On 5 October 2021, Malaysia was added to the grey list as its foreign source income exemption regime was identified as harmful.  Costa Rica, Hong Kong, Qatar and Uruguay are also listed.

Malaysia has, however, committed to amend or abolish its foreign source income exemption regime and has been granted a grace period until 31 December 2022 to adapt its legislation.

Currently, Paragraph 28 of Schedule 6 of the Income Tax Act, 1967 provides an income tax exemption to any person (other than a resident company carrying on the business of banking, insurance or sea or air transport) in respect of any income derived from outside Malaysia and remitted back into Malaysia.  This, when coupled with the absence of any specific substance requirements, has been viewed as harmful as it could lead to double non-taxation.

There would appear to be a need for the Malaysian Government to either abolish the foreign source income exemption regime or to amend it to remove the harmful features.  In consideration of the above, there is the possibility of the Malaysian Government introducing measures leading to the taxation of foreign source income.

As the 2022 National Budget is due to be tabled on 29 October 2021, some light might be shed at this stage on the Government’s proposed course of action.

As the abolition or amendment of the foreign source income exemption regime could have a fundamental effect on the tax position of the recipient, affected taxpayers should monitor developments and assess the potential impact.

The revised EU’s list of non-cooperative jurisdictions can be accessed via the above link.

Should you have any questions or require further clarification, please do not hesitate to email or contact any of our Executive Directors, Directors, Associate Directors or Managers whom you are accustomed to dealing with or who are responsible for the tax affairs of your organization.