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Tax Thursday: Germany – Tax Implications of the amended EU Blacklist
Issue
On February 14, 2023, the Council of the European Union amended the EU list of non-cooperative jurisdictions for tax purposes (the so-called EU blacklist) making it more relevant, in particular by adding Russia. The British Virgin Islands, the Marshall Islands and Costa Rica were also added to the list.
Implications
The EU blacklist has an impact on the reporting obligations under the EU’s mandatory disclosure rules (MDR/DAC 6). Cross-border arrangements must be reported if they involve deductible payments to a recipient resident in a blacklisted jurisdiction.
In addition, at the domestic level, EU Member States have been urged to take specific legislative measures against blacklisted jurisdictions.
For this reason, Germany has introduced the “Tax Haven Defense Act” in 2021. The following defensive measures apply in Germany when conducting business with entities resident in blacklisted jurisdictions after the amended EU list is adopted in the Tax Haven Defense Ordinance:
- DTT benefits will be denied
- Non-deductibility of business expenses
- Extended CFC rules
- Extended limited tax liability / WHT rules
- Denial of tax exemption on dividends or capital gains
- Extensive expansion of reporting requirements
Implications of the extended EU blacklist are also given for the German extraterritorial IP taxation in third party cases.
Furthermore, the current draft of the public CbCR reporting contains additional disclosure requirements for blacklisted jurisdictions in comparison to other third countries.
To do
When doing business with any of the (newly added) blacklisted jurisdictions, the domestic tax implications must be considered.
The EU blacklist is updated on a regular basis. The next update is scheduled for October 2023. Business relationships and developments should continue to be monitored closely.
Questions
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