Update: PwC Overview of defensive tax measures in EU Member States

16/03/21

On the occasion of the publication of the updated version of the EU list of non-cooperative jurisdictions (the EU list) on 22 February 2021, PwC has prepared an updated overview of “defensive tax measures” applicable or proposed by the EU Member States. EU Member States committed (at a political level), to use the EU list, as of 1 January 2021, in the application of at least one of four of the following measures:

non-deductibility of costs incurred in a listed jurisdiction;
controlled foreign company (CFC) rules, to limit artificial deferral of tax to offshore, low-taxed entities;
withholding tax measures, to tackle improper exemptions or refunds, and
limitation of the participation exemption on shareholder dividends.

These are the so called “defensive tax measures”.

The publication is available here. The research work shows that 22 EU Member States have adopted or proposed at least one defensive measure in January 2021. This is in contrast to the previous publication (November 2020) where only 9 EU Member States had adopted or proposed at least one defensive tax measure.

The results of this publication are based on the input that was provided by the members of PwC’s EU Direct Tax Group (“EUDTG”).

The EU list of non-cooperative jurisdictions

On 5 December 2017, the Council of the European Union (the Council) adopted the first EU list. The EU list consists of non-EU countries that encourage abusive tax practices, which erode EU Member States’ corporate tax revenues. According to the Council, the EU list “is a tool to tackle: a) tax fraud or evasion, b) tax avoidance and c) money laundering.” Since December 2017, the EU list has been revised several times with the most substantial amendments taken place in March 2019 and February 2020. From 2020, the list is updated twice a year.

As of 22 February 2021, the EU list is composed of the following jurisdictions: American Samoa, Anguilla, Dominica, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, the US Virgin Islands and Vanuatu.

Main conclusions and interesting observations

Most EU Member States have introduced or proposed a defensive tax measure.
Some EU Member States apply more than one defensive tax measure. The publication contains a table in which you can see the defensive measures proposed or applicable in each EU Member State.
We note a variation as to whether EU Member States follow the EU list dynamically (e.g. at the time that a transaction takes place or at the end of the tax period) or statically (e.g. through an annual update or determination of the jurisdictions in the relevant provision). Given that the EU list will be updated twice per year, this becomes a very relevant point.

Certain EU Member States apply the EU list, in parallel with a domestic list, for the purposes of the application of a defensive tax measure. This is the case, for instance, in Belgium, Bulgaria, France, Hungary, the Netherlands and Poland. This could therefore broaden the scope of the defensive measure(s). For the purposes of this publication, a measure was considered defensive if it is also linked to the EU list, next to a domestic list.
There are some EU Member States that apply a defensive measure that only uses a domestic list of non-cooperative jurisdictions/jurisdictions with a preferential tax regime. This could therefore limit the scope of the defensive measure(s). This is the case, for instance, in Greece, Lithuania, Portugal and Spain. This domestic list may include certain jurisdictions that are already included in the EU list. For instance, the domestic list of Lithuania includes all countries included in the EU list except for Guam and Panama. In Italy, the withholding tax exemption on certain interest payments applies only if the recipient is resident in a country included in the domestic white list provided by the Italian Ministry of Economy and Finance. Notably, the list contains certain jurisdictions that are included in the EU list. For the purposes of the publication, if the domestic list of the EU Member State does not include all jurisdictions included in the EU list or if it refers to another list or international criteria (e.g. at the OECD level), such a measure was not considered defensive.

For more interesting observations, we refer you to the updated publication.

What does it mean for you?

A transaction related to a country included in the EU list may have important consequences not only in your EU Member State of residence but also in other EU Member States in which activities are performed. In addition, given that the EU list will be updated twice per year, the listing of a country may have immediate consequences in certain EU Member States as regards to their defensive tax measures. Therefore, you should be able to monitor the defensive measures applicable or proposed in each EU Member State and follow the (policy) developments with regard to the EU list. With the help of PwC’s broad European network, we are able to assist you in this.