EU adds Russia and Costa Rica to list of tax havens

Russia and Costa Rica to list of tax havens

Following the decision, approved by the Ministers of Economy and Finance, the list of tax havens updated by the EU includes sixteen territories: the four added today, Russia, Costa Rica, the British Virgin Islands and the Marshall Islands; as well as Panama, American Samoa, Fiji, Guam, Palau, Trinidad and Tobago, Samoa, the American Virgin Islands, Vanuatu, Bahamas, Anguilla and the Turks and Caicos Islands, which were already there.

The list, which is updated every six months, includes those jurisdictions that fail to comply with EU standards in terms of tax transparency, tax justice or implementation of international standards to prevent erosion of the tax base or profit shifting, and that In addition, they do not take steps to tackle these problems.

Being included in it does not entail economic sanctions, beyond the prohibition that European funds transit through entities located in these jurisdictions and administrative measures, such as more frequent audits, although States may decide at the national level to impose other types of penalties. 

Costa Rica, for the first time

Costa Rica is included in this list for the first time since it was created in 2017, since it has not fulfilled its commitments to abolish or modify certain aspects of its exception regime for foreign sources of income considered harmful, as explained by the Council of the EU.  

In the case of Russia, they have verified that new legislation adopted in 2022 does not respect Moscow’s commitment to address the harmful parts of its regime for international holding companies in accordance with international criteria, to which is added that with the Russian aggression against Ukraine, the dialogue on tax issues between the EU and Moscow has come to a standstill. 

It is the first time that Russia has entered the EU’s black list, although since last year it has been on the so-called “grey list” of countries that do not meet the European criteria but have promised to make changes, specifically for this reason. legislation on holding companies. 

For its part, the Marshall Islands return to the black list, in which they already appeared in 2018, because by having a zero rate of corporate tax it is feared that it is attracting benefits to its jurisdiction without companies having a real economic activity in it. the territory. Meanwhile, the British Virgin Islands entered for the first time by not complying with international standards on the exchange of tax information.

Costa Rican reaction

The website of the Costa Rican presidency explained the day before in a statement that the measure was due “to non-compliance with the commitment made by the previous administration, to reform the tax system to tax extraterritorial passive income before December 31, 2022”.

“According to the guidelines of the European Union, the passive income that a person or company generates abroad should be taxed in Costa Rica, in order to avoid ‘unfair competition’ between the tax regimes of the countries and the existence of income free of taxation”, added the Costa Rican government.

“Although it cannot be guaranteed that sanctions will be avoided by all EU Member States, the (Rodrigo) Chaves Robles government is coordinating so that the impact on investment is as little as possible,” he concluded by promising the notice.

Congratulations to Uruguay and Jamaica

“We call on all the countries on the list to improve their legal framework and work to meet international tax standards,” said Swedish Finance Minister Elisabeth Svantesson, whose country is chairing the EU Council this semester. On the contrary, she congratulated Uruguay, Jamaica, North Macedonia and Barbados for having managed to get off the “grey list” after fulfilling the commitments they had made with the EU. 

The EU has always insisted that the objective of the list is to encourage third countries to make changes to those tax regimes that do not comply with international standards and, since it was launched in 2017, 140 regimes considered harmful have been eliminated, as indicated today by the European Commission.