Executive summary

On 18 February 2025, the Council of the European Union (the Council) held an Economic and Financial Affairs Council (ECOFIN) meeting in which Finance Ministers approved the Council Conclusions on the EU list of monitored jurisdictions, set out in Annex II, the "state-of-play overview." No changes were made to the list of noncooperative jurisdictions for tax purposes, set out in Annex I (EU List)

The Council removed Costa Rica and Curaçao form the state-of-play overview, while Brunei Darussalam was added to this list. No changes were made to the status of Vietnam, although it has made progress in implementing its commitments.

The Council will continue to review and update the EU List semiannually, with the next update due in October 2025.

Detailed discussion

Background

The European Union (EU) started working on the list of noncooperative jurisdictions for tax purposes in 2016. On 5 December 2017, the Council published the first EU List (Annex I) and the state-of-play overview (Annex II). The EU List is set out in Annex I and includes jurisdictions that fail to meet the EU's criteria by the required deadline. The state-of-play overview, set out in Annex II, includes jurisdictions that have made sufficient commitments to reform their tax policies but remain subject to close monitoring while executing their commitments. Once a jurisdiction has executed all of its commitments, it is removed from the state-of-play overview.

The initial EU List included 17 jurisdictions that were deemed to have failed to meet relevant criteria established by the European Commission (the Commission).¹ Multiple changes have been made to the EU list since its initial release, based on recommendations from the Code of Conduct Group for Business Taxation (COCG). These changes may occur if, for example, the COCG identifies new jurisdictions or regimes or reassesses jurisdictions already on the EU List. The removal of a jurisdiction from the EU List or from the state-of-play overview is considered justified if an expert assessment establishes that the jurisdiction now meets all the conditions posed by the COCG.

The Commission also instituted the first countermeasures against listed noncooperative tax jurisdictions by adopting a Communication in March 2018 that established new requirements targeting tax avoidance in EU legislation governing, in particular, financing and investment operations.² The requirements aim to ensure that EU external development and investment funds cannot be channeled or transited through entities in jurisdictions included in the EU List without being confronted with countermeasures.

Moreover, in 2019, the Council released additional guidance on defensive measures toward noncooperative jurisdictions. Concurrently, it also released guidance on assessing jurisdictions with notional interest deduction regimes and the treatment of partnerships under criterion 2.2 (existence of tax regimes that facilitate offshore structures that attract profits without real economic activity).³ In accordance with the guidance on defensive measures mentioned above, EU Member States are required, as of 1 January 2021, to use the EU List in applying at least one of four specific legislative measures:

1. Nondeductibility of costs incurred in a listed jurisdiction
2. Controlled foreign company rules
3. Withholding tax measures
4. Limitation of the participation exemption on shareholder dividends

Many Member States have already adopted or drafted legislation for these defensive measures.

In October 2023, the COCG published its Multiannual work package (2023 — 2028), which mentions that the group could explore how to facilitate the proper functioning of the Pillar Two rules by making use of the EU listing process. The COCG will also continue to discuss the new beneficial ownership criterion (criterion 1.4) and the extension of the geographical scope of its EU List screening process, which now encompasses approximately 95 non-EU jurisdictions.

Revised EU List

In total, the Code of Conduct on Business Taxation Group proposed three changes to Annex II, the state-of-play overview, which ECOFIN adopted during its 18 February 2025 meeting.

As stated above, the Council added Brunei Darussalam to Annex II, while Costa Rica and Curaçao were removed from Annex II. The reasons for the changes are as follows:

• Brunei Darussalam was added to Annex II to help ensure commitment to amend or abolish a harmful foreign-source income exemption regime by 31 December 2025.
• Costa Rica and Curaçao were removed from Annex II, because they have fulfilled their commitments by amending a harmful tax regime.

Vietnam remains on the state-of-play overview (Annex II).

• At a previous meeting of the ECOFIN, Vietnam had been given more time to comply with its commitment on country-by-country reporting (CbCR).
• Vietnam committed to implementing the CbCR minimum standard and to activating CbCR exchange relationships with all EU Member States. Based on this reassurance, Vietnam was granted until 31 December 2024 to sign the Multilateral Competent Authority Agreement on CbCR and until 31 January 2025 to take the necessary steps to activate CbCR exchange relationships with all EU Member States.
• Vietnam has now signed the Multilateral Competent Authority Agreement on the exchange of CbCR and is in the process of taking the necessary steps to activate CbCR exchange relationships with all EU Member States.

Next steps

The Council will periodically review and update the EU List and the state-of-play overview, taking into consideration the evolving deadlines for jurisdictions to deliver on their commitments and the evolution of the listing criteria that the EU uses to establish the EU List. Until 2019, the EU List was regularly updated without a fixed schedule to reflect the reforms undertaken by third countries. However, beginning in 2020, Member States agreed that the lists will be updated no more than twice a year to ensure (i) a more stable listing process, (ii) business certainty and (iii) that Member States can effectively apply defensive measures against listed jurisdictions. Accordingly, the next revision to the EU List is expected in October 2025.

Implications

With its listing process, the EU continues to exert pressure on third states to enhance transparency and remove harmful elements from their tax systems. Businesses with activities in jurisdictions listed as noncooperative should understand the implications of a jurisdiction's being included in the EU List, including:

• Reporting obligations arising from the mandatory disclosure rules (MDR) contained in Directive 2011/16/EU as amended by Council Directive (EU) 2018/822 (MDR Directive or DAC6) require, in part, the disclosure of cross-border arrangements that involve cross-border deductible payments when the recipient of the payment is tax-resident in a jurisdiction included on the EU List of noncooperative jurisdictions for tax purposes.
• EU Member States may consider applying one or more defensive measures, including tax and non-tax measures, to prevent the erosion of their tax bases. These may include measures such as non-deductibility of costs, enhanced controlled-foreign-company rules or withholding tax measures, among others.

The lists will also have implications for public CbCR, under which information should be disclosed on a country-by-country basis and thus be disaggregated for all EU Member States⁴ and all jurisdictions included in the EU List (on the first of March of the financial year for which the report should be drawn up) and the state-of-play overview (on the first of March of the financial year for which the report should be drawn up for two years consecutively).⁵ Further, companies cannot delay the publication of commercially sensitive information for up to five years by making use of the safeguard clause included in the public CbCR rules if the information relates to jurisdictions included in the EU List or in the state-of-play overview.

As the work of the EU COCG is a dynamic process, companies should continue to closely monitor developments, including other Member States' introduction of defensive measures toward noncooperative jurisdictions.

Annex: Jurisdiction status as of 18 February 2025