Removal from EU tax blacklist: what this means for British Virgin Islands

The British Virgin Islands (BVI) were removed from the European Union’s List of Non-Cooperative Jurisdictions for Tax Purposes – popularly called the “EU Tax Blacklist” – on 17th October.

The change was decided by a meeting of EU finance members (“ECOFIN”). The decision was made unanimously, as is required of all changes to the EU Tax Blacklist. See the press release from ECOFIN here.

BVI was added to the EU Tax Blacklist in February 2023: the first time that it had been included. Its removal from the list is particularly notable for how quickly it took place after the initial listing.

BVI was included on the EU Tax Blacklist for a single, specific reason that it received a “Partially Compliant” rating from the OECD’s Global Forum in November 2022. That body assesses countries’ exchange of information when requested by other countries’ governments. The EU automatically includes on its Tax Blacklist all jurisdictions with a Partially Compliant rating or lower from the OECD, regardless of other compliance levels.

However, the OECD recognised in granting that rating that it had not considered legislative changes that BVI had passed in 2022, as they only came into effect on 1st January 2023: including the BVI Business Companies (Amendment) Act and BVI Business Companies (Amendment) Regulations.

BVI immediately requested a supplementary review from the OECD to review the effectiveness of the new legislation.  Permission for a supplementary review was granted in March.

The OECD’s guidance says that countries may only receive permission for supplementary reviews after a year, but for exceptional circumstances. The acceptance that those exceptional circumstances exist – by granting a review after just four months – showed the great extent to which the OECD’s concerns had already been met.

Nonetheless, the EU only updates its Tax Blacklist twice a year – in February and October.  As a result, this month’s meeting of EU finance ministers was the first opportunity after the OECD granted permission in March that it could be removed from the Blacklist.

BVI has therefore been moved from the EU Tax Blacklist to “Annex II” of the EU’s List of Non-Cooperative Jurisdictions for Tax Purposes – popularly but inaccurately called the “EU Tax Greylist”.  This is pending the OECD’s supplementary review; if the OECD finds BVI to be “Largely Compliant” or fully “Compliant” – the top two ratings – it will be removed from Annex II of the EU’s list, and therefore not be on any list.

That supplementary review will take place in the first quarter of 2024. The conclusions of that review are most likely to be adopted in early 2025, leading to removal from Annex II of the EU’s list in October 2025 if – as expected – the review is positive.

While some defensive measures were imposed on countries on the EU Tax Blacklist, the consequences of being listed in Annex II – as BVI is for now – are very limited, as it is meant to represent a watching brief. Neither the EU Tax Blacklist nor Annex II come with consequences where there is no nexus between the entity in the listed jurisdiction and the EU.

However, where there is a nexus with the EU, a number of defensive measures will now no longer apply against BVI entities, e.g.

1. Most EU Member States impose withholding taxes on dividends and interest paid to entities in Blacklisted jurisdictions.  These will no longer be applicable, although EU Member States may have their own WHT regimes.
2. About half of EU Member States limit participation exemptions when dividends are received from entities in Blacklisted jurisdictions.  This will no longer be applicable.
3. The EU’s DAC6 requires disclosure of advice rendered by EU advisers to entities in Blacklisted jurisdictions.  This will no longer be applicable.

The EU Tax Blacklist is unrelated to the EU List of High-Risk Third Countries or FATF Grey List for purposes of money laundering, which do not include BVI. The latter is being revised on 27th October.