Finance ministers of European Union (EU) Member States have issued their latest assessment of third countries' cooperation on tax matters, with the British Virgin Islands (BVI) and Costa Rica both being removed from the 'Annex 1' list of non-cooperative jurisdictions.
It is an especially significant decision for the BVI, which was placed on the list in February 2023 after the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published the outcome of its peer-review process to assess the BVI’s compliance with international standards for exchange of tax information on request (EOIR), downgrading the BVI's rating to partially compliant. However, the jurisdiction had already amended its framework on EOIR in the BVI Business Companies Amendment Act 2022 and BVI Business Amendment Regulations 2022, which came into force on 1 January 2023.
In August 2023, the Global Forum therefore decided to grant the BVI a supplementary review. This led the EU's Code of Conduct Group (Business Taxation) to conclude that the BVI could be removed from Annex I for EOIR. It has therefore been upgraded to the Annex II list of countries that are under enhanced monitoring but have committed to improving their tax cooperation. The BVI will now remain on the Annex II list, pending the outcome of the supplementary review.
Costa Rica was also removed from the Annex I list and moved to Annex II, following the approved reforms to the country's Income Tax Law that amended aspects of the foreign-source income exemption regime. These reforms include a clarification to the scope of the territoriality principle and introduction of a new taxation regime for foreign-source passive income.
The Marshall Islands was also removed from Annex I, on the basis that its enforcement of the economic substance requirements has improved sufficiently.
Four jurisdictions have been removed from the Annex II list. Jordan and Qatar fulfilled their commitments by amending a harmful tax regime, while Montserrat and Thailand fulfilled all their pending commitments related to country-by-country reporting. With the addition of the BVI and Costa Rica, Annex II now comprises 14 jurisdictions.
Antigua and Barbuda, Belize and Seychelles have been added to the Annex I list. All three have not met the Global Forum's EOIR standards. With these updates, the Annex I list now consists of 16 non-cooperative jurisdictions.
As a consequence of the listing process, EU Member States can now apply various sanctions measures to these jurisdictions, including non-deductibility of costs, higher withholding tax on interest and royalties and limitations on the participation exemption for profit distributions.
News Source：【EU Council 2023/10/19】