The EU in its attempt to promote fair tax competition and address harmful tax practices, has added Turks and Caicos Islands for the first time to its list of non-cooperative jurisdictions for tax purposes.
The Council regrets that the 12 jurisdictions on the list are non-cooperative on tax matters and invites them to engage with the EU’s Code of Conduct Group in order to resolve the identified issues.
“Fair taxation of businesses benefits all of us. This is why the EU and international partners share a common interest in fighting tax base erosion and profit shifting. I believe all 12 countries on the list will deliver on their commitments and carry out the necessary reforms in the field of taxation as soon as possible, so that they can be deleted from this list when we will next revise it in 6 months time,” says Zbyněk Stanjura, Minister of Finance of The Czech Republic.
Reasons for adding Turks and Caicos Islands
This revised EU list of non-cooperative tax jurisdictions (Annex I) includes countries that either have not engaged in a constructive dialogue with the EU on tax governance or have failed to deliver on their commitments to implement the necessary reforms. Those reforms should aim to comply with a set of objective tax good governance criteria, which include tax transparency, fair taxation and implementation of international standards designed to prevent tax base erosion and profit shifting.
The reason for the inclusion of Turks and Caicos Islands in the list is that there are concerns that the jurisdiction, which have a zero or nominal only rate of corporate income tax, is attracting profits without real economic activity (criterion 2.2 of the EU list). In particular, it failed to adequately address a number of recommendations of the OECD Forum on Harmful Tax Practices (FHTP) in connection to the enforcement of economic substance requirements, something to which it committed earlier in 2022.
The Code of Conduct Group, which prepares the updates of the list, is cooperating closely with international bodies such as the FHTP to promote tax good governance worldwide.
State of play document (Annex II)
In addition to the list of non-cooperative tax jurisdictions, the Council approved the usual state of play document (Annex II) which reflects the ongoing EU cooperation with its international partners and the commitments of the 12 countries to reform their legislation to adhere to agreed tax good governance standards. Its purpose is to recognise ongoing constructive work in the field of taxation, and to encourage the positive approach taken by cooperative jurisdictions to implement tax good governance principles.
The EU list of non-cooperative jurisdictions for tax purposes was established in December 2017. It is part of the EU’s external strategy on taxation and aims to contribute to ongoing efforts to promote tax good governance worldwide.
Jurisdictions are assessed on the basis of a set of criteria laid down by the Council. These criteria cover tax transparency, fair taxation and implementation of international standards designed to prevent tax base erosion and profit shifting. Work on the list is a dynamic process. Since 2020, the Council updates the list twice a year. The next revision of the list is scheduled for February 2023.
The list is set out in Annex I of the Council conclusions on the EU list of non-cooperative jurisdictions for tax purposes. The conclusions also include a state-of-play document (Annex II) identifying cooperative jurisdictions which have made further improvements to their tax policies or related cooperation.
The Council’s decisions are prepared by the Council’s Code of Conduct Group which is also responsible for monitoring tax measures in the EU member states. The Chair of the Group maintains regular dialogue with jurisdictions concerned.
Apart from Turks and Caicos Islands, the other countries on the list are American Samoa, Anguilla, The Bahamas, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, and Vanuatu.