Tax Haven Prevention Act / Tax Haven Prevention Order
With the Entry into force of the Tax Haven Prevention Regulation On 24 December 2021, the Tax Haven Prevention Act its effect. The Act implements the EU list of non-cooperative countries and territories for tax purposes (the so-called ‘blacklist’), with a view to combating tax avoidance and unfair tax competition.
The aim is to make tax havens less attractive and thereby encourage them to align with EU standards. The list of non-cooperative countries includes states and territories that do not meet standards in the areas of tax transparency, unfair tax competition and BEPS minimum standards.
Among other things, the purpose of the ‘add-back’ taxation is to prevent companies from shifting their income to a company in a tax haven and thereby evading tax. Income from intermediate companies resident in the respective countries on the list is taxed at the level of their domestic shareholder.
In addition, there is a stricter withholding tax measure designed to extend the limited tax liability of individuals resident in tax havens. This and other measures are intended to make it unattractive to do business with companies based in tax havens.
In the latest Amendment to the Tax Haven Prevention Regulation On 11 October 2022, the so-called zero-rate jurisdictions (countries and territories that levy no corporation tax or a corporation tax at a rate of close to zero per cent) were added to the list.With the addition of Anguilla, the Bahamas and the Turks and Caicos Islands, there are now 12 countries and territories on the list of non-cooperative tax jurisdictions.
- American Samoa
- Anguilla
- Bahamas
- Fiji
- Guam
- Palau
- Panama
- Samoa
- Trinidad and Tobago
- Turks and Caicos Islands
- US Virgin Islands
The list is identical to the EU list of non-cooperative countries and territories for tax purposes and is also regularly updated in line with it. The EU list is usually updated twice a year. Individuals and companies that do business with foreign firms should check regularly to see whether they are affected by updates to the list and, if necessary, seek professional advice.
However, it is not only tax-evading companies that are affected by this measure. Even before the law was enacted, there was considerable justified criticism that the tourism industry would also suffer as a result of the legislation. Tourism companies that make use of services in the countries listed (e.g. transit, hotels) will be subject to sanctions. Consequently, it may become difficult for tourism companies to remain competitive in these countries. To avoid such an additional burden in the future, it is worth considering whether to adapt the relevant business model or even to discontinue operations in the region.
Should you have any further questions on this subject, our specialist solicitors and tax advisers will be happy to assist you.