On 14 February 2023, the EU Council adopted an updated list of non-cooperative jurisdictions for tax purposes. This list includes countries that have not met the criteria set by the EU (e.g. international exchange of tax information, minimum standards on profit shifting or the existence of harmful tax regimes).

The British Virgin Islands, Costa Rica, the Marshall Islands and Russia have newly been added to the list. The list not includes a total of 16 jurisdictions:

• American Samoa
• Anguilla
• Bahamas
• British Virgin Islands
• Costa Rica
• Fiji
• Guam
• Marshall Islands
• Palau
• Panama
• Russia
• Samoa
• Trinidad and Tobago
• Turks and Caicos Islands
• US Virgin Islands
• Vanuatu

Russia has been added to the list after the Code of Conduct Group (an EU body) found that a commitment to address the harmful aspects of the special regime for international holding companies had not been met.  Moreover, after Russia’s aggression against Ukraine, negotiations have stalled.

The inclusion of the above-mentioned jurisdictions on the list has serious tax consequences for Czech companies, e.g.:

• For tax purposes, the activities of a controlled foreign company from a given jurisdiction (or a permanent establishment) will be treated as if they were carried out by the Czech controlling company, and the related income of this controlled company will be subject to taxation in the Czech Republic (regardless of whether or not the profit share was paid to the Czech Republic). For example, a company that directly or indirectly participates in the registered capital (at least 50%) of a controlled foreign company is considered a Czech controlling company.
• If the recipient of the payment is a tax resident of a listed jurisdiction, the deductible payments made by its related party will be subject to the reporting requirements of DAC 6.

So far, only countries, in which Czech companies have minimal ties and do not have direct or indirect participation in local companies, have been on the list. However, Russia is now also on the list, which from our perspective, might have an impact on a number of Czech companies.

We would therefore recommend checking whether or not this new update to the list of non-cooperative countries in the tax area may affect you. If you are interested, we will of course be happy to assist you.