In a nutshell: Pursuant to a decree of the Council of the European Union in February 2023 through its Economic and Financial Affairs Council – ECOFIN, the Republic of the Marshall Islands was added to the EU list of non-cooperative tax jurisdictions. The list is updated in February and October of each year and includes jurisdictions which do not meet EU standards for tax transparency, tax fairness, or implementation of international rules to prevent tax base erosion or profit shifting and do not take steps to address these issues. With effect from 17 October 2023, due to the good cooperation of the Marshall Islands with the EU authorities, it was decided to remove the Marshall Islands from the list of non-cooperative tax jurisdictions.

The list of non-cooperative tax jurisdictions was introduced by the EU as part of its efforts to curb tax avoidance and harmful tax practices.

In deciding whether a jurisdiction is placed on the list, the EU evaluates jurisdictions based on three main criteria: tax transparency, fair taxation and implementation of OECD measures to prevent tax base erosion and profit shifting.

The Economic and Financial Affairs Council (ECOFIN) had placed the Marshall Islands back on the list of non-cooperative tax jurisdictions in February 2023, where it had been once before in 2018. ECOFIN suspected that entities incorporated in the Marshall Islands but not doing business there were taxed at a corporate tax rate of zero, or at a nominal tax rate only, without any real economic activity in the Marshall Islands or elsewhere. As a result, one of the EU’s evaluation criteria was not met. In addition, ECOFIN found that the Marshall Islands lacked in the enforcement of the entities’ economic substance requirements.

ECOFIN placed in February 2023 a total of 14 jurisdictions on the list of non-cooperative tax jurisdictions. The list also included, among others, Panama, Russia and Vanuatu. The list is reviewed twice a year. Removal from the list is considered if the relevant jurisdiction fulfils its obligations and ECOFIN can see progress in tax transparency and cooperation.

In Germany, the inclusion into the list of non-cooperative tax jurisdictions has the consequence that entities incorporated under the laws of such jurisdictions become subject to the provisions of the “Law for the Defence against Tax Avoidance and Unfair Tax Competition” (Steueroasen-Abwehrgesetz). The repercussions for these entities as well as for their business partners with tax residency in an EU member state are serious, always depending on the law of the relevant EU member state.

In recent months, the Marshall Islands have made considerable efforts to address the criticism from ECOFIN with the aim of achieving removal from the list of non-cooperative tax jurisdictions at the earliest possible date. Areas which required improvement by the Marshall Islands were identified and the necessary changes were implemented. According to our information, this included the adjustment of more formal administrative procedures in the monitoring of the applicable regulations, which have been implemented by the Marshall Islands as of February this year.

ECOFIN decided to remove the Marshall Islands from the list of non-cooperative tax jurisdictions on 17 October 2023.

If you have any questions in respect of this topic, please do not hesitate to refer to your usual contact person at Ehlermann Rindfleisch Gadow or Dr. Stefan Rindfleisch or Dr. Klaus Dimigen, both registered lawyers admitted to practice in the Marshall Islands.