Council of the European Union updates the list of non-cooperative jurisdictions in the tax area

The Council of the European Union has newly added 3 jurisdictions, namely Antigua and Barbuda, Belize and Seychelles, to the EU's list of non-cooperative jurisdictions in the tax area. At the same time, the British Virgin Islands, Costa Rica and the Marshall Islands have been removed from the list as they have made changes to their tax laws and practices. There are currently a total of 16 jurisdictions on the EU list.

What is the EU list of non-cooperative jurisdictions?

In the context of the fight against tax evasion and tax avoidance, the EU Council has, since 2017, established a list of countries that have failed or refused to comply fully with their commitments to comply with the good governance criteria in the tax area by the deadline. 

Jurisdictions are screened on the basis of 3 criteria: 

• tax transparency, 
• fair taxation and measures against tax base erosion 
• and profit shifting.

If any of these criteria are not met, they will be placed on the list of non-cooperative jurisdictions. Information on the current list of jurisdictions can be found in Annex I and II of the Council Conclusions on the EU list of non-cooperative jurisdictions. The EU list is updated twice a year and the next update is scheduled for February 2024. 

What does this mean for you?

For the purposes of income taxes under Section 38fa(2) of Act No. 586/1992 Coll, on income tax, as amended, income arising from the activities of a controlled foreign company which, at the end of its tax year, is a tax resident of a state on the EU list of non-cooperative jurisdictions or a permanent establishment located in such a state, and the treatment of its assets from which income is derived in the tax year, is treated as if the income had been earned by the controlling company in the Czech Republic. 

This fact results in the transfer of the tax residence of the foreign controlled company to the Czech Republic for income tax purposes. The income of the foreign company is included in the income of the Czech parent company and is assessed according to the applicable Czech tax legislation.

Therefore, if you own a share in a company that is resident in certain states registered on the EU list of non-cooperative jurisdictions, you must include the income of the controlled company in the corporate income tax return of the Czech controlling company and follow Czech law. 

This change will already apply to companies whose taxable year is the financial year ending in November 2023.

The PKF APOGEO Tax team is ready to answer any questions you may have.

Author: Vu Anh Dao