On February 28, 2017, the Ministry of Finance of Greece published a list of noncooperative states.
What are Noncooperative States
In order for a state to be designated as “noncooperative”, it has to satisfy the following four conditions:
1. The state is not a member of the European Union;
2. The state’s legal structure with respect to transparency and exchange of information in tax matters has not been reviewed by the OECD (Organisation for Economic Co-Operation and Development);
3. The state has not signed any treaty with Greece on administrative assistance in tax matters (basically tax information exchange) nor do they offer such assistance; and
4. The state has not signed tax administrative assistance treaties with at least twelve other states.
The last requirement appears to be somewhat random in the number of states.
Why the List of Noncooperative States Matters
The list of noncooperative states is important because transactions with any states on this list are subject to heightened scrutiny by the Greek tax authorities. Moreover, certain limitations may be imposed on the companies involved in transactions with noncooperative states, especially with respect to tax deductibility of certain expenses. Additionally, the Greek tax authorities may look particularly close at such companies with respect to transfer pricing issues and the controlled foreign corporation tax compliance issues.
This Year’s List of Noncooperative States
In February of 2017, a total of twenty-nine states were on the list of noncooperative states. Here is the list: Andorra, Antigua and Barbuda, Bahamas, Bahrain, Barbados, Brunei, Cook Islands, Dominica, Grenada, Guatemala, Hong Kong, Lebanon, Liberia, Liechtenstein, Macedonia, Malaysia, Marshall Islands, Monaco, Nauru, Niue, Panama, Philippines, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Samoa, Uruguay, the U.S. Virgin Islands, and Vanuatu. As the readers can see, some of the “states” are really just tax jurisdictions within a state (such as U.S. Virgin Islands).
It should be noted that some of these tax jurisdictions are favorite designations for forming foreign corporations (e.g. Bahamas and Barbados), other foreign entities (such as Nevis LLC) and foreign trusts (e.g. Cook Islands). Furthermore, a lot of these tax jurisdictions are also designated as “tax shelters” by other countries.