On February 14, 2023, in a meeting of ECOFIN the EU Ministers of Economics and Finance decided to include the Russian Federation in the EU list of non-cooperative jurisdictions for tax purposes adopted by the Council of the European Union (so-called tax havens). This will have a number of tax implications. One of the most fundamental of them will be the obligation to identify cross-border tax schemes with regard to transactions with related entities based in Russia.
The updated list was published yesterday in the Official Journal of the European Union. In addition to Russia, the British Virgin Islands, Costa Rica and the Marshall Islands were added to the list.
Currently, the EU list of tax havens includes the following countries:
- American Samoa
- British Virgin Islands
- Costa Rica
- Marshall Islands
- Russian Federation
- Trinidad and Tobago
- Turks and Caicos Islands
- US Virgin Islands
When will a transaction with Russia become a tax scheme?
Pursuant to the provisions of the Polish Tax Ordinance, in case of payments, recognised as tax deductible costs, made to a related entity with its registered office, management board or place of residence in a country applying harmful tax competition (including those indicated in the EU list of non-cooperative jurisdictions for tax purposes), therefore including to Russia, a tax scheme should in principle be identified.
Notably, the prerequisite for the occurrence of a tax scheme in such a case is neither the occurrence of a tax advantage nor even an activity leading to achieving it. The value of the transaction also remains irrelevant (e.g. a transaction regarding goods worth 1 PLN may also be identified as a tax scheme).
Furthermore, it should be noted that the provisions relating to mandatory disclosure rules (i.e. reporting of tax schemes) independently define which entities should be considered as related.
Should you have any questions regarding the above-discussed issue, please do not hesitate to contact us.