COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on Tax Good Governance in the EU and beyond
Date: 2020-07-15
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: code of conduct, fiscal policy, governance, international cooperation, tax system, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 15.7.2020  COM(2020) 313 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on Tax Good Governance in the EU and beyond  
 
 
1. INTRODUCTION 

Fair  taxation  is  central  to  the  EU’s  social  and  economic  model  and  its  sustainability.  It  is 
essential for sustainable  revenues,  a competitive business  environment  and overall taxpayer 
morale.  It  is  crucial  to  meet  some  of  the  EU's  core  objectives,  including  a  just  society,  a 
strong Single Market with sustainable revenues, a level-playing field for all companies, and a 
stable  economy  built  on  growth,  jobs  and  investment.  For  those  reasons,  President  von  der 
Leyen has stressed that a fair tax system, where everybody pays their fair share, is one of the 
priorities  for  the  Commission.  In  view  of  the  global  recovery,  it  is  equally  important  for 
partner  countries  that  the  recovery  is  supported  by  domestic  resource  mobilization  with  a 
functioning taxation system at the heart of it. This will help in addressing the socio-economic 
consequences of the COVID-19 crisis. 

The European Parliament1 has also repeatedly called for EU action to clamp down on harmful 
tax  competition  and  aggressive  tax  planning  and  to  tackle  tax  havens,  for  fairer  and  more 
effective  taxation  and  to  reduce  the  risk  of  money  laundering.  The  agenda  for  fair  taxation 
will  be  all  the  more  important  in  the  months  and  years  ahead,  as  the  EU  works  to  recover 
from the fallout of the COVID-19 crisis and to accelerate the green and digital transition. It 
will be crucial for stable public revenues, a healthy business environment and investment in 
public services, correcting market failures, and sending the right price signals for sustainable 
consumption, which will help to pave the way for a swift and sustainable recovery across the 
EU  and  beyond,  as  stressed  in  the  recent  Commission  Communication  ‘Europe’s  moment: 
Repair and Prepare for the Next Generation’2. 

Tax  good  governance  is  the  foundation  on  which  fair  taxation  is  built.  Broadly,  tax  good 
governance  encompasses  tax  transparency,  fair  tax  competition,  the  absence  of  harmful  tax 
measures  and  the  application  of  internationally  agreed  standards.  In  recent  years,  there  has 
been significant action – at EU and international level – to strengthen these principles and to 
ensure that they are upheld.  

The Commission has pushed an ambitious agenda to improve tax good governance and clamp 
down hard on tax abuse, in the EU and beyond. As a result, Member States are now equipped 
with a robust tax transparency framework, common anti-tax avoidance measures and a new 
mechanism for resolving tax disputes. Enhanced transparency requirements for legal entities 
and  arrangements  have  reduced  risks  of  misuse  for  tax  avoidance.  Tax  crimes  have  been 
added to the scope of predicate offences to money laundering and all professionals offering 
advice or assistance on tax matters are now subject to EU anti-money laundering/countering 
the  financing  of  terrorism  obligation  to  reduce  criminals’  avenues  to  launder  their  illicit 
proceeds. Through state aid cases and European Semester recommendations, the Commission 
has challenged harmful competition and called out unfair tax practices. In addition, Member 

1  TAXE  committee  resolution  of  25  November  2015  on  tax  rulings  and  other  measures  similar  in  nature  or 
effect; TAX2 committee resolution of 6 July 2016 on tax rulings and other measures similar in nature or effect, 
PANA  committee  recommendation  of  13  December  2017  following  the  inquiry  into  money  laundering,  tax 
avoidance  and  tax  evasion,  TAX3  resolution  of  26  March  2019  on  financial  crimes,  tax  evasion  and  tax 
avoidance.  
2 COM(2020)456 final. 

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States  continue  to  peer  review  each  others’  tax  regimes,  under  the  Code  of  Conduct  on 
Business  Taxation  (“Code”),  to  ensure  that  they  comply  with  the  principles  of  fair  tax 
competition.  

In  parallel,  the  EU  has  worked  to  promote  higher  levels  of  tax  good  governance 
internationally too. It has strongly supported the OECD’s work on tax transparency and Base 
Erosion  and  Profit  Shifting  (BEPS),  and  set  an  example  globally  by  integrating  the  new 
global  norms  into  EU  law.  Many  of  the  new  initiatives  implemented  at  EU  level  have  an 
external  element  –  including  Country-by-Country  Reporting,  the  common  hybrid  mismatch 
rules  and  requirements  for  tax  advisors  to  report  tax-planning  schemes.  In  addition,  by 
launching the work on the fair taxation of the digital economy, the EU helped to provide new 
impetus into international discussions on this issue.  

The  Commission’s  2016  External  Strategy  for  Effective  Taxation3  provided  a  coherent  and 
holistic approach for the EU to promote tax good governance globally and to engage with its 
international  partners  on  tax  matters.  The  primary  focus  of  the  External  Strategy  was  to 
strengthen  the  cooperation  with  third  countries  on  tax  good  governance  issues,  through 
clauses in bilateral agreements, support to developing countries on tax matters and measures 
to  prevent  negative  spillovers  from  tax  policies  in  the  EU.  However,  the  Strategy  also 
launched a new tool to encourage the EU’s international partners to adhere to agreed tax good 
governance standards, through the EU listing process.  

All  of  these  initiatives  have  contributed  to  creating  a  fairer  tax  environment  in  the  EU  and 
beyond. However, new challenges continue to emerge and the EU’s instruments to regulate 
fair  tax  competition  and  deter  harmful  tax  practices  –  inside  and  outside  the  EU  -  need  to 
keep pace. Globalisation, digitalisation and modern business models are creating new limits 
for  tax  competition  and  new  opportunities  for  aggressive  tax  planning.  The  EU’s  tax  good 
governance agenda must continue to evolve, to prevent losses to national and EU budgets and 
to ensure that EU citizens and businesses can continue to rely on fair and effective taxation in 
the future.  

The present Communication is part of a Tax Package for fair and simple taxation supporting 
the recovery of the EU, which includes a Communication for an Action Plan that presents a 
number of upcoming initiatives in the field of direct and indirect taxation concerning the fight 
against tax fraud and the simplification of tax regimes4, as well as a legislative proposal5 to 
revise the directive on administrative cooperation6.  

Further action will ensure that EU tax law is aligned with the modern economy and adapted 
to any international developments on corporate tax reform.  To complement these measures, 
the Communication focusses primarily on the soft law measures and external actions, taking 
stock of the experience so far and  identifying  changes  that are needed in  this field.  On this 

3 COM(2016) 24 final.  
4 COM(2020) 312 final. 
5 COM(2020) 314 final. 
6 Council Directive 2011/16/EU of 15 February 2011 on administrative co-operation in the field of taxation, OJ 
L 64, 11.3.2011, p. 1. 

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basis,  it  sets  out  the  priority  areas  for  action  over  the  coming  years,  to  enhance  tax  good 
governance standards and ensure fair taxation.  

2. REFORM OF THE CODE OF CONDUCT ON BUSINESS TAXATION 

The  Code  of  Conduct  for  Business  Taxation  (the  “Code”)  has  been  the  EU’s  primary 
instrument  to  prevent  harmful  tax  competition,  since  its  creation  in  1997.  It  works  on  the 
premise that, whilst tax competition among countries is not problematic per se, there need to 
be common principles on the extent to which they can use their tax regimes and policies to 
attract  businesses  and  profits.  This  is  particularly  important  in  a  Single  Market,  where  the 
Treaty freedoms increase the mobility of profits and investment. 

The Code is a soft law instrument, that operates on the basis of peer review and peer pressure 
between  Member  States.  It  sets  out  principles  for  fair  tax  competition  and  is  used  to 
determine whether a tax regime is harmful or not. The Code of Conduct Group, composed of 
high-level  national  representatives,  oversees  Member  States’  compliance  with  the  Code.  It 
assesses Member States’ tax measures and determines whether they are harmful, based on a 
technical  analysis  from  the  Commission.  If  the  tax  measure  is  found  to  be  harmful,  the 
Member State in question must amend or abolish it. Since the Code was established, over 400 
tax regimes have been assessed in the EU and around 100 of these were found to be harmful.  

In addition to the Code’s achievements within the EU, it has also had a remarkable impact on 
the global tax environment in recent years. This is because it has been the basis for assessing 
third countries in the context of the EU list of non-cooperative tax jurisdictions (see point 2 
below). The central role of the Code for the EU listing process underlines its importance as a 
tool to combat harmful tax competition and promote tax good governance principles widely.  

However,  in  spite  of  the  Code’s  achievements,  it  is  clear  that  it  is  in  need  of  reform  and 
modernisation. The nature and form of tax competition have changed substantially over the 
past  two  decades  and  the  Code  has  not  evolved  to  meet  the  new  challenges.  Globalisation, 
digitalisation,  the  growing  role  of  multinationals  in  the  world  economy,  the  increased 
importance of intangible assets, and the reduction of barriers for business have all intensified 
the pressure on states to use taxation to compete for foreign investment. This has prompted 
tax competition to escalate and evolve, testing the very parameters of fairness. In this context, 
both Member States and the European Parliament have questioned the ability of the Code to 
tackle contemporary forms of harmful tax competition. The effectiveness of the Code should 
be substantially improved, in light of today's realities outlined above. 

2 (a) Timing the reform for maximum effect 

The  timing  of  the  Code  reform  must  be  carefully  considered,  to  ensure  that  the  result  is  as 
ambitious and effective as possible. The ongoing  international  discussions  on the reform  of 
corporate taxation, steered by the OECD, could have a major impact on the accepted limits of 
tax competition in the future. In particular, if minimum effective taxation becomes a global 
standard,  there  will  be  a  new  floor  on  how  low  countries  can  go  in  using  their  tax  rates  to 

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attract  foreign  businesses  and  investment.  This  will  clearly  have  to  be  integrated  into  the 
EU’s actions on fair tax competition, within a reformed Code of Conduct. At the same time, 
if  there  is  no  consensus  on  minimum  taxation  at  global  level,  this  concept  needs  to  be 
introduced in the Code  as an EU standard, to modernize and clarify the concept of harmful 
tax  competition  and  to  ensure  that  all  businesses  pay  their  fair  amount  of  tax  when  they 
generate profits in the Single Market. 

2 (b) Reviewing the scope and criteria of the Code  

In the meantime, however, there are a number of issues that can already be considered in the 
context of a future reform of the Code.  

For a start, the scope of the Code should be widened, to cover all measures which pose a risk 
to fair tax competition. The definition of the scope should be amended to cover further types 
of regimes and general aspects of the national corporate tax systems as well as relevant taxes 
other than corporate tax.  Under the current  scope of the Code, there  are  too  many  types of 
harmful regimes that can escape assessment. For example, the Code only looks at specific tax 
measures  and  regimes.  However,  increasingly,  countries  are  using  the  general  structures  of 
their  tax  systems  to  engage  in  tax  competition,  for  instance  by  providing  particular  tax 
residency rules which can lead to double non-taxation or tax exemptions for foreign income, 
which may favour harmful tax practices without appropriate safeguards. In addition, the Code 
does  not  cover  special  citizenship  schemes  or  measures  to  attract  expatriates  or  wealthy 
individuals,  even  though  these  are  often  a  back  door  to  unfairly  attracting  business  and 
investment from other countries. Recent studies by the OECD7 also suggest that citizenship 
schemes may be used to avoid tax transparency rules. It is therefore important to examine the 
use of citizenship schemes such as Golden Visas when reforming the Code.  

The Code should also be updated to ensure that all cases of very low taxation are examined – 
inside and outside the EU.  The EU already requires third countries with zero or no taxation 
to implement strict economic substance and transparency standards, to avoid being put on the 
EU list. These requirements should be formally integrated into the Code, so that there is full 
coherence between the criteria applied within the EU and in relation to third countries.  

2 (c) Improving the governance of the Code 

The reform of the Code  should also  consider how it can be  applied more transparently  and 
effectively.  While  there  have  been  some  improvements  to  the  governance  of  the  Code  of 
Conduct Group in recent years, there is scope to do more. The Code of Conduct Group could 
make more information publicly available on its dedicated website and inform the public and 
stakeholders  of  milestones  in  its  work.  The  Group  could  also  introduce  qualified  majority 
voting, to speed up decision-making, and consider effective consequences for Member States 
that do not comply with the Group’s decisions on time.  

https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/residence-citizenship-by-

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investment/ 

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The Commission invites Member States to start discussing the proposals under 1 (a) –(c) for 
an  ambitious  reform  of  the  Code,  while  awaiting  the  outcome  of  the  international  tax 
discussions  (according  to  the  OECD’s  work  plan  there  should  be  sufficient  clarity  on  the 
outcome  of  the  international  work  on  tax  reform  by  the  end  of  the  year).  The  Commission 
will work with Member States to elaborate a concrete plan to reform the Code, so that it is 
better fit to tackle the modern challenges of tax competition – within the EU and externally.  

3. REVIEW OF THE EU LIST OF NON-COOPERATIVE JURISDICTIONS 

While the Code was initially developed as an instrument to regulate internal tax competition 
in  the  EU,  its  focus  has  more  recently  broadened  to  address  the  external  dimension  of  this 
policy  area,  as  well.  Principles  of  fair  tax  competition,  set  out  in  the  Code,  are  among  the 
criteria used to assess third countries under the EU listing process. The aim is to improve the 
global tax governance context, ensure a level playing field at international level and support 
third  countries  governments  in  their  effort  to  implement  commitments  and  actions  taken  at 
global level (for instance in the framework of  the G20 anti-Base Erosion and Profit Shifting 
initiatives or the Addis Ababa Action Agenda). 
The EU list of non-cooperative tax jurisdictions was first proposed in the Commission’s 2016 
External Strategy, as a tool to deal with external risks of tax abuse and unfair tax competition. 
Since then, it has become a powerful tool to promote tax good governance internationally and 
has contributed to fighting tax avoidance and tax evasion worldwide. In the four years since 
the listing process started, 95 jurisdictions have been assessed against three key criteria: tax 
transparency,  fair  taxation  and  the  implementation  of  the  OECD  Base  Erosion  and  Profit 
Shifting (BEPS) minimum standards. If a jurisdiction is found to be deficient in one or more 
of these criteria, it is asked to commit to address the problems within a set deadline. 

By the start of 2020, over 120 harmful tax regimes had been eliminated globally8, in direct 
response  to  the  EU  listing  process.  Dozens  of  third  countries  had  also  taken  concrete 
measures  to  improve  their  tax  transparency  standards,  in  line  with  EU  requirements.  This 
raises  the  level  of  tax  good  governance  globally,  creates  a  level  playing  field  amongst 
international  players  and  reduces  the  opportunities  for  tax  abuse.  As  such,  the  EU  list  has 
benefits  beyond  the  EU's  borders,  particularly  for  developing  countries,  who  are 
disproportionately impacted by illicit financial flows.  

The EU listing process has created a new basis for the EU to engage with partners countries, 
on tax issues of mutual interest, in line with its efforts to foster good global tax governance. 
Dialogue and outreach are a central  part of the exercise. The Commission Services' regular 
discussions with the jurisdictions, in coordination with the European External Action Service, 
have  assisted  dozens  of  them  to  comply  with  the  required  standards.  This  new  channel  of 
engagement  on  tax  issues  has  allowed  for  constructive  dialogue  with  partner    countries  in 
today's fast-paced, globalised and digitalised economy, and should be continued.  

8 https://data.consilium.europa.eu/doc/document/ST-8603-2020-REV-1/en/pdf 

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Four  years  after  the  launch  of  this  new  listing  exercise,  the  Commission  believes  that  it  is 
high  time  to  take  stock  of  the  experience  gained  so  far  and  to  review  how  it  can  remain 
effective, fair and fit for new challenges as they continue to emerge.  

3 

(a) Reviewing the geographical scope of the EU list 

When  the  EU  listing  process  was  launched  in  2016,  EU  Member  States  selected  the 
jurisdictions to bring into its scope, based on an objective scoreboard of indicators developed 
by  the  Commission.  Member  States  used  this  scoreboard  as  a  basis  for  deciding  which 
jurisdictions to screen, also taking into account other relevant factors, such as the presence of 
a  financial  centre.  Member  States  decided  from  the  outset  to  exclude  least  developed 
countries from the EU listing process, given their limited capacity to comply with the criteria 
within  the  required  deadlines.  For  similar  reasons,  some  flexibility  has  been  introduced  for 
developing countries without a financial centre,  when it comes to  the  criteria and timelines 
they must respect.  

After  several  years  of  practical  experience  implementing  the  EU  listing  process  with  the 
selected jurisdictions, Member States have indicated a wish to review the geographical scope 
of the list. In particular, they are keen to ensure that all risk areas have been covered and that 
comparable jurisdictions are being treated in a fair and even manner under the EU process.  

To  facilitate  this  reflection,  the  Commission  will  update  by  the  end  of  2020  the  original 
scoreboard used to select the most relevant jurisdictions to screen. The new scoreboard will 
reflect the most recent data, as well as developments in the global economy and tax policy. It 
will include additional sources of information to offer a comprehensive picture of the EU’s 
economic and financial links with third countries. In addition, the Commission will take into 
account the new methodology to identify high-risk third countries for anti-money laundering 
and  terrorist  financing  purposes9,  to  ensure  that  the  two  listing  processes  are  mutually 
reinforcing. The revision of the scoreboard will help EU Member States to identify additional 
countries  they  may  wish  to  screen,  based  on  objective  criteria,  and  will  make  the  process 
more stable and predictable for the EU partners. 

3 

(b) Reviewing EU listing criteria 

A discussion on the geographical scope of the EU list will also need to consider the criteria 
that selected jurisdictions must comply  with. Removing any  jurisdiction  that is  currently in 
the  scope  of  the  EU  list  would  impact  on  the  level  playing  field  and  undermine  the  very 
positive work that most of these jurisdictions have already done. However, there should be a 
reflection  on  whether  the  EU  listing  criteria  could  be  applied  in  a  more  targeted  way  for 
certain jurisdictions.  

The  experience  with  the  EU  listing  process  so  far  has  shown  that  certain  jurisdictions,  in 
particular  developing  partners,  face  capacity  constraints  when  implementing  some  of  their 

9 https://ec.europa.eu/info/files/200507-anti-money-laundering-terrorism-financing-action-plan-methodology_en 

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commitments. There is a need to consider whether all criteria are relevant for all jurisdictions, 
based on the potential risk of their economic and tax environment.  For low-risk developing 
countries,  it  could  be  an  option  to  only  apply  the  criteria  that  are  most  relevant.  There  is 
already a precedent for this in the listing process, as developing countries without a financial 
centre  do  not  have  to  comply  with  the  automatic  exchange  of  information  criterion. 
Alternatively,  or  in  tandem,  the  EU  list  deadlines  can  be  adapted  for  countries  with  severe 
capacity  constraints  or  without  financial  centres,  to  reflect  the  particular  situation  of  the 
jurisdictions concerned.  

Beyond this, the tax good governance criteria used for the listing process should be examined 
more generally, to ensure that they are up-to-date and adequately ambitious. As a first step, 
they should be updated to reflect the latest international developments in the fight against tax 
avoidance  and  evasion, 
the 
in 
implementation of OECD minimum standards on Base Erosion and Profit Shifting.  

the  area  of  beneficial  ownership10  and 

including 

Discussions  at  international  level  on  taxation  of  the  digital  economy  and  global  tax  reform 
will also need to be taken into account in the EU listing criteria. This is particularly important 
if there is a global consensus on minimum effective taxation. This issue should be looked at 
in  tandem  with  the  future  reform  of  the  Code,  once  the  outcome  of  the  international  tax 
reform discussions are clearer. 

In the same vein,  the  criteria should also  be reviewed to  ensure that they are being  applied 
widely enough to capture all risks. Work has already started in this respect. For example, in 
2019, Member States decided to look at certain broad tax exemptions, which could pose the 
same  risk  of  preferential  tax  regimes.  The  Commission  will  continue  to  review  the 
international tax landscape to identify any new business and tax planning practices that could 
be problematic.  

Finally,  it  is  important  to  closely  monitor  the  jurisdictions  that  have  already  been  cleared 
under the EU listing process.  This  will ensure that the reforms  are effectively implemented 
and there is no backtracking. The Commission will conduct this monitoring and report to the 
Member States. It will also coordinate with the OECD to ensure that the EU and international 
monitoring processes are as aligned as possible.  

3 

(c) Boosting transparency and accountability   

The EU listing process has created a new framework for regular discussion between the EU 
and its international partners on tax good governance issues. The Commission has always put 
strong emphasis on the need for dialogue and engagement with the third countries concerned. 

10  With  due  regard  to  the  work  in  this  area  at  international  level.  In  the  context  of  the  EU  anti-money 
laundering/counter-terrorism  financing  listing  process,  which  more  broadly  focuses  on  beneficial  ownership 
aspects,  additional  requirements  compared  to  international  standards  could  be  introduced,  in  line  with  the 
priorities highlighted by the  Commission in the  Action plan  for a comprehensive Union  policy on preventing 
money  laundering  and  terrorism  financing  (See:  https://ec.europa.eu/finance/docs/law/200507-anti-money-
laundering-terrorism-financing-action-plan_en.pdf ). 

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Over the past four years, there have been thousands of contacts and exchanges at technical, 
diplomatic and political level, both directly and through multilateral fora. This has helped to 
clarify the EU’s expectations when it comes to tax good governance worldwide, while also 
allowing  the  EU  to  better  understand  the  positions  of  its  global  partners  on  tax  good 
governance  issues.  The  Commission  is  committed  to  further  strengthening  this  positive 
dialogue  process,  moving  forward,  in  cooperation  with  the  High  Representative.  In  this 
respect, it will work to establish an annual gathering for representatives of the jurisdictions, to 
discuss EU listing issues and to share information and best practices.  

The  Commission  will  also  draw  on  the  dialogue  with  third  countries  to  identify  reasonable 
concerns, which it will relay to the Member States in an effort to find solutions. For example, 
the continued use of national tax lists of Member States, in parallel to the EU listing process, 
is  a  source  of  confusion  and  uncertainty  for  a  large  number  of  third  countries.  This  is 
particularly  the  case  when  the  national  criteria  and  listing  processes  are  not  clearly 
communicated  or  when  there  are  differences  between  the  countries  put  on  the  EU  list  and 
national  lists.  There  are  strong  arguments  for  aligning  these  to  the  EU  listing  process  for 
countries, which have been screened under the latter, for coherence and to provide clarity for 
third countries and businesses. The Commission will launch a discussion on this issue with 
the Member States and explore how to further coordinate the approach to listing jurisdictions 
for tax purposes so as to ensure that third countries are treated in a consistent way by the EU 
and its Member States.   

Finally, the Commission will continue to push for as much transparency and accountability as 
possible  in  the  EU  listing  process.  In  this  respect,  the  European  Parliament  should  be 
regularly updated on developments in the EU listing process. The Commission will also keep 
civil  society  informed  within  the  framework  of  the  Platform  for  Tax  Good  Governance, 
which was also instrumental in launching the EU listing process.  

3 

(d)  Strengthening  tax  good  governance  in  agreements  with  third  countries  and 
expanding the dialogue with third countries on environmental taxes. 

Another  important  way  in  which  the  EU  promotes  fairness  in  tax  matters  is  through  a  tax 
good  governance  clause  in  relevant  international  agreements  with  third  countries.  The 
European  Parliament  considers  the  tax  good  governance  clause  to  be  one  of  the  “core 
instruments  of  EU  external  policy”11  and  has  repeatedly  called  for  it  to  be  systematically 
included  in  any  relevant  EU  agreements  with  third  countries  and  regions.  In  the  2016 
External Strategy, the Commission suggested updating and strengthening the standard good 
governance clause, to align it with the latest international norms. Member States endorsed a 
new  text  in  May  2018  and  confirmed  that  such  wording  should  be  included  in  all  relevant 
international agreements.  

The  Commission  has  since  tabled  the  updated  clause  in  all  relevant  new  and  ongoing 
negotiations,  several  of  which  are  in  the  process  of  being  successfully  concluded.  The 

11 TAXE 3 report, 26/03/2019 

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Commission will continue to insist on the inclusion of the tax good governance clause in all 
relevant  future  negotiations  on  international  agreements.  In  the  event  that  a  third  country 
refuses to accept the clause, or insists on changing it to the extent that it no longer serves the 
intended  purpose,  the  Commission  and  Member  States  must  consider  the  appropriate 
response. Such countries could be scrutinised under the EU listing exercise. 

The Commission in its dialogue with third countries will also put emphasis on the ‘polluter-
pays  principle’,  enshrined  in  the  Treaty  on  the  functioning  of  the  European  Union,  which 
calls for pricing the negative externalities of polluting or other damaging activities. There is 
an  under  explored  potential  for  environmental  taxes  to  contribute  to  more  progressive  and 
sustainable  tax  systems  and  more  equitable  societies  in  developing  countries.  In  many 
developing  countries,  increasing  the  amount  of  revenues  raised  through  environmental 
taxation has also the potential to  reduce state dependence on aid and debt financing, and to 
facilitate the mobilisation of domestic resources for public services. As environmental taxes 
are harder to evade than e.g. corporate or personal income taxes, they also have the potential 
to strengthen state accountability, improve tax morale and enhance fiscal governance.   

4. IMPROVED MEASURES TO REINFORCE GOOD GOVERNANCE 

Listing a jurisdiction should be a last resort option, reserved for those countries that refuse to 
adequately acknowledge or address the EU’s concerns with their tax systems. However, once 
a  jurisdiction  is  listed,  there  should  be  consequences,  to  ensure  that  the  EU  list  remains 
effective.  

Since  the  EU  list  was  established,  countermeasures  against  listed  jurisdictions  have  been 
developed  on  two  aspects.  First,  the  EU  adopted  stronger  provisions  in  key  EU  funding 
legislation12, to prevent EU funds from being indirectly invested in or channelled through EU 
listed jurisdictions. In addition, EU Member States have agreed to apply defensive measures 
against EU listed jurisdictions in a coordinated way.  Countermeasures linked to the EU list 
should be reviewed on a regular basis, to ensure that they are as dissuasive and effective as 
possible.  

4 (a) Promoting Tax Good Governance through EU funds 

As  announced  in  the  2016  External  Strategy,  the  EU  introduced  a  legally  binding  link 
between  tax  good  governance  standards  and  the  use  of  EU  funds.  This  is  reflected  in  key 
legal  instruments13, which  prevent  EU funds from supporting projects  that contribute to  tax 
avoidance.  Additionally,  for  financial  instruments  and  budget  guarantees,  the  legal 

12 These include the current EU Financial Regulation (FR), Regulation (EU) 2017/16013 on a European Fund 
for  Sustainable  Development  (EFSD),  Decision  466/2014/EU  on  the    External  Lending  Mandate    (ELM)  and 
Regulation on a European Fund for Strategic Investments (EU) 2015/10175 (EFSI). 
13 Financial Regulation, European Fund for Sustainable Development (EFSD), the European Fund for Strategic 
Investment (EFSI) and the External Lending Mandate (ELM). 

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framework prevents from using jurisdictions on the EU blacklist for tax or on the EU list of 
high-risk third countries for anti-money laundering and counter-terrorism financing purposes. 
However,  if  the  project  is  physically  implemented  in  the  jurisdiction,  funding  may  still  be 
allowed to preserve development and sustainability objectives.  

The Commission has also provided guidance14 to EU implementing partners and called them 
to ensure that their internal policies allowed them to implement EU funds in line with the new 
EU tax requirements. The European Bank for Reconstruction and Development (EBRD) and 
the  European  Investment  Bank  (EIB)  Group  have  published  internal  policies,  to  take  into 
account  the  recent  international  tax  developments15.  The  actions  at  international  level  and 
tightened rules for  the use of  EU funds are also leading a number of international  financial 
institutions and national agencies to enhance their due diligence checks. This is encouraging 
market operators, in turn, to move away from schemes in non-cooperative jurisdictions and to 
pay closer attention to the risks of tax avoidance. 

Based on the application of these rules so far, the Commission  considers that they could be 
used  more  widely,  to  reinforce  tax  good  governance  principles.  EU  Member  States  should 
mirror the EU efforts  when it comes to  the use  of their own funds. The  Commission  urges 
Member States who have not already done so to reflect the EU requirements in their national 
funding  policies  and  in  the  compliance  rules  of  their  promotional  banks  and  development 
agencies.  In  that  way,  no  funds  from  the  EU  or  its  Member  States  would  be  channelled 
through entities from listed jurisdictions or be involved in tax avoidance schemes. This would 
give  the  EU  more  weight  and  credibility  when  promoting  tax  good  governance  standards 
internationally.  

In  the  same  line  of  thought,  the  Commission  put  forward  a  Recommendation16  pursuant  to 
which Member States should make their financial support to undertakings conditional on the 
absence of links between those undertakings and jurisdictions that feature on the Union list of 
non-cooperative  jurisdictions  for  tax  purposes,  so  as  to  ensure  that  the  considerable  efforts 
made by Member States to support the recovery are implemented in a way that is consistent 
with the need to ensure international tax fairness.  

The Commission will also launch, most probably by end of 2020, a discussion with Member 
States to consider how this alignment of EU and national funding policies can be achieved. It 
will  also  consider  in  this  context  whether  the  use  of  EU  and  Member  States’  funds  and 
Member States’ defensive measures can be better aligned, to concentrate the impact on non-
cooperative jurisdictions.  

14  Commission  Communication  on  new  requirements  against  tax  avoidance  in  EU  legislation  governing  in 
particular financing and investment operations (C(2018)1756, 18.03.2018). 
15  See  Domiciliation  of  EBRD  clients  and  EIB  Group  policy  towards  weakly  regulated,  non-transparent  and 
noon-cooperative jurisdictions and tax good governance (2019). 
16 C(2020) 4885 final. 

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As a second step, building on experience at EU level, the Commission will consider how to 
bring other international donors on board in preventing tax avoidance in the use of all public 
funds. The Commission will report on the internal EU coordination  work by mid-2022, and 
then consider ways to promote best practices at a broader international level.  

In parallel, the Commission will continue to engage in close dialogue with the international 
financial  institutions  and  other  implementing  partners,  to  review  how  the  new  EU 
requirements have impacted their work and processes. In particular, it will consider whether 
the guidance needs to be clarified or updated. In order to smoothen implementation, identify 
best practices and promote a level playing field, the Commission will launch discussions with 
EU  implementing  partners  on  this  issue  before  the  end  of  2020.  On  the  basis  of  these 
discussions, it will present a report to the European Parliament and the Council, as of 2022, 
with clarifications and solutions for particular issues, as needed.  

4 (b) Strengthening defensive measures against non-cooperative jurisdictions 

In addition to having implemented the stronger provisions for EU funds, the Commission has 
consistently  called  on Member States to  apply strong,  dissuasive and coordinated defensive 
measures  against  EU  listed  countries.  A  common  approach  to  defensive  measures  is 
important to ensure that the EU list has real impact, and also to provide clarity and certainty 
to  third  countries  and  investors.  In  December  2017,  Member  States  took  the  initial  steps 
towards  coordination,  by  agreeing  on  certain  administrative  measures,  such  as  increased 
audits, to apply to  companies and investors in EU listed countries17. This was reinforced in 
December  2019,  when  Member  States  agreed  on  a  toolbox  of  defensive  measures  to  apply 
against EU listed countries18. Member States will start to apply these defensive measures in 
2021 and agreed to assess the need for further coordination in 2022. 

This coordinated approach goes in the right direction but it lacks ambition. In particular, the 
fact that Member States can choose which and how many measures to apply from the toolbox 
could  result  in  a  patchwork  situation  across  the  Single  Market.  This  may  not  address 
businesses’ concerns with regard to the legal uncertainty and administrative burdens. It may 
also  enable  certain  taxpayers  to  exploit  mismatches  between  Member  States’  measures,  to 
continue to shift untaxed profits out of the Single Market.  

The  Commission  will  monitor  the  situation  carefully,  as  Member  States  start  to  apply  the 
agreed  defensive  measures,  and  conduct  an  evaluation  of  those  measures.  If  the  toolbox 
approach is not effective enough, on the basis of the abovementioned assessment in 2022, it 
will consider a legislative proposal for coordinated defensive measures. This would allow the 

17  See  Annex  III  of  the  Council  conclusions  on  the  EU  list  of  non-cooperative  jurisdictions  for  tax  purposes 
(https://www.consilium.europa.eu/media/31945/st15429en17.pdf) 
18  See  Annex  IV  of  the  Report  from  the  Code  of  Conduct  Group  (Business  Taxation)  to  the  Council 
(https://data.consilium.europa.eu/doc/document/ST-14114-2019-INIT/en/pdf) 

11 

 
 
  
 
 
 
 
                                                           
EU to give real "teeth" to the EU list and would ensure a truly coordinated policy towards EU 
listed countries.  

5. SUPPORTING PARTNER COUNTRIES IN TAX GOOD GOVERNANCE 

The  EU’s  tax  good  governance  agenda  extends  beyond  taxation  policy  concerns.  As  the 
world’s  largest  donor  of  development  aid  and  supporter  of  global  governance,  the  EU  is 
conscious of the importance of good governance for developing partners. 

Raising sufficient revenues remains a challenge for many developing countries. Over a third 
of  African  countries  have  a  tax  to  GDP  ratio  of  under  15%19,  which  is  considered  the 
minimum  to  allow  for  the  provision  of  basic  social  services.  Developing  countries  depend 
almost twice as much on corporate income tax for revenues as developed countries do20. As 
such, they are much harder hit by the problems of tax fraud, tax evasion and tax avoidance. 
Likewise, they are likely to benefit from EU and international efforts to raise global standards 
and curb aggressive tax planning worldwide.   

The 2016 External Strategy underlined the need for greater coherence between EU tax policy 
and its international development objectives.  The Commission, through its “Collect More  – 
Spend  Better”  initiative21,  set  out  clear  measures  to  help  partner  countries  to  improve  and 
protect their tax bases, raise sustainable revenues and improve the efficiency of government 
spending. Since then, the EU has been supporting partner countries to improve their domestic 
resource mobilisation and to implement fair, transparent and effective tax systems. This is in 
keeping  with  the  EU’s  commitments  under  the  Addis  Tax  Initiative22,  where  it  pledged  to 
increase both technical and financial support for domestic revenue mobilization in developing 
countries. 

In  line  with  its  commitments,  the  EU  is  on  track  to  double  the  support  for  developing 
countries  in  the  area  of  domestic  resource  mobilisation.  Since  2015,  the  Commission  has 
steadily  increased  support  in  this  area  having  reached  approximately  EUR  1000  million 
commitments  in  2019  and  has  co-financed  a  tool23  to  assist  with  reforms  in  94  tax 
administrations  worldwide,  amongst  other  things.  Bilateral  budget  support  operations 
increasingly  include  assistance  to  mobilise  domestic  revenues  and  implement  tax  good 
governance  standards.  This  financial  and  technical  support  remains  crucial  in  helping 
countries  with  limited  administrative  and  financial  capacities  and  the  EU  will  continue  to 
invest heavily in this area. 

19 According to OECD revenue statistics 
20 Corporate income tax accounts for 16% of total tax revenues in low and middle-income economies, compared 
to 8% for developed countries. 
21 https://ec.europa.eu/international-partnerships/system/files/swd-collect-more-spend-better_en.pdf   
22  A  specific  initiative  within  in  the  framework  of  the  Addis  Ababa  Action  Agenda,  focussed  on  increasing 
tax  capacity  and  promoting  policy  coherence  for  development.  See: 
development  assistance  for 
http://www.addistaxinitiative.net/. 
23 Tax Administration Diagnostic Assessment Tool (TADAT) 

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In addition, the Commission has also analysed possible spillover effects of double tax treaties 
signed by Member States with developing countries, in particular with the poorest countries. 
The Commission developed a toolbox24 that the Member States could take into account when 
negotiating  double  tax  treaties  with  developing  countries  to  support  their  domestic  revenue 
mobilisation.  The  issue  of  spillovers  was  looked  at  in  detail  by  the  Platform  on  Tax  Good 
Governance  and  the  Commission  organised  an  expert-level  seminar  on  the  issue  in  2018. 
Work  will  continue  on  this  issue  under  the  new  mandate  of  the  Platform  on  Tax  Good 
Governance.   

5 (a) Strengthening partnership and cooperation internationally 

With the start  of the Decade of Action to  implement  the Sustainable  Development  Goals25, 
tax good governance remains a key issue on which all countries have to act. This is also in 
line  with  the  principle  of  policy  coherence  for  development.  The  Commission  is  therefore 
determined to give even greater impetus to tax good governance measures and initiatives to 
boost domestic revenue mobilisation amongst the EU’s developing partners.  

The  Addis  Tax  Initiative  was  supposed  to  end  in  2020.  However,  the  signatories  of  this 
Initiative agreed to prolong the work, given the positive contribution it can make to countries’ 
long-term sustainable development. The Commission is actively contributing to defining the 
plan for the next phase of work under the Addis Tax Initiative, post-2020. It firmly believes 
that the work in this area should be fully aligned to the Sustainable Development Goals, and 
that work on domestic revenue mobilisation at international level should be accelerated.  

The  EU  cannot  work  in  isolation  on  tax  good  governance  and  its  implementation  in 
developing  countries.  Strong  collaboration  with  the  OECD,  the  UN,  the  IMF  and  other 
international actors is essential, to coordinate effective assistance and support. For example, 
Integrated  National  Financing  Frameworks  (INFF)  –  which  identify  how  each  country’s 
sustainable development strategy will be financed from all sources of finance (public/private, 
domestic/international) -  would be an ideal framework to discuss how to best target funding. 
The  Commission  will  also  continue  to  encourage  and  support  Member  States  in  providing 
technical  expertise on tax matters to the EU’s developing country partners, via existing EU 
tools  such  as  twinning  and  the  technical  assistance  and  information  exchange  instrument 
(TAIEX).  

5 (b) Integrating developing countries into the global tax framework 

EU efforts to help developing countries fight tax abuse and mobilise domestic revenues can 
only be effective if there is a strong sense of ownership in the jurisdictions themselves. The 
global work to improve good governance requires a fully inclusive and  collaborative global 
approach.  For  that  reason,  the  EU  has  actively  supported  the  participation  of  developing 
countries in international tax fora, where standards are set and peer reviews are conducted. 

24 https://ec.europa.eu/taxation_customs/sites/taxation/files/toolbox_dtas_spill_overs_en.pdf   
25 https://www.un.org/sustainabledevelopment/decade-of-action/   

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Through the EU listing process, all countries were encouraged to join the OECD’s Inclusive 
Framework  for  Base  Erosion  and  Profit  Shifting  (BEPS)  and  the  Global  Forum  on 
Transparency and Information Exchange. As participants in those fora or other organisations, 
developing countries have a voice around the table as new global standards are set and peer 
reviews  are carried out.  The EU also  provided funding, through  international  organisations, 
for technical assistance to developing countries in implementing agreed tax good governance 
standards. This included, for example, EUR 2 million to the Global Forum in 2019, to help 
developing  countries  to  improve  their  tax  transparency  measures.  The  Commission  will 
continue to support the active participation of developing countries in these bodies, and will 
work  to  ensure  more  targeted  assistance26  and  enhanced  policy  dialogue  to  support  their 
domestic revenue mobilisation.  

5 (c) Widening the policy agenda 

The  Commission,  in  cooperation  with  the  High  Representative,  will  also  reflect  on  how  to 
integrate wider tax priorities in the EU’s relations with developing countries. Certain policy 
priorities, while not directly linked to tax good governance, are highly relevant in supporting 
more  sustainable,  robust  and  future-proof  tax  systems  in  developing  countries.  This  is 
particularly  the  case  for  green  taxation,  the  taxation  of  the  digital  economy  and  possible 
international  corporate  tax  reforms.  The  countries  should  be  encouraged  to  proceed  in  the 
sustainable  tax  shift,  which  has  to  be  introduced  within  broader  fiscal  reform  packages  to 
avoid the risk of increasing the often already large societal inequalities. 

The  link  between  trade  policies  and  revenue  priorities  in  third  countries  and  other  policy 
areas also requires consideration. For example, developing countries should be supported in 
identifying  alternative  sustainable  tax  revenues,  to  compensate  for  decreasing  customs 
revenues,  which  may  arise  due  to  their  better  integration  into  regional  and  international 
economy  including  corresponding  tariff  reductions.  The  EU  should  help  those  developing 
countries  that  want  to  reduce  barriers  for  businesses  and  lower  tariffs  by  identifying 
alternative  sustainable  revenues  and  improving  administrative  governance  in  the  area  of 
customs and taxation. This may include environmental taxes, many of which are in principle 
more difficult to evade and aim at supporting sustainable development. The EU has already 
provided support in these areas and will continue to contribute to countries’ efforts to  align 
their legal environment to international norms where third countries so request and in a way 
that best suits third countries. 

The Commission will follow up to the proposal for a new Neighbourhood, Development and 
International  Cooperation  Instrument27,  which  foresees  that  “taxes,  duties  and  charges 
imposed by partner countries may be eligible for financing”.  

26  The  Commission,  together  with  several  EU  Member  States  and  other  international  donors  supports  and 
streamlines the OECD Global Relation and development programme. See: https://www.oecd.org/ctp/tax-global/  
27 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2018%3A460%3AFIN  

14 

 
 
                                                           
A  holistic  and  cross-sector  policy  approach  will  be  applied  in  taking  forward  the 
abovementioned  actions,  in  accordance  with  the  principle  of  Policy  Coherence  for 
Development.  

6. CONCLUSION 

Fair taxation and tax good governance – within the EU and beyond - remain core objectives 
of the Commission’s work over the coming years. This Communication responds to demands 
from the European Parliament, Council and civil society for a review of the EU measures to 
ensure the proper  good  governance, fair competition and a level  playing  field  in  the Single 
Market  and  globally.  It  also  acknowledges  the  important  role  that  taxation  has  to  play  in 
delivering on the implementation of the 2030 Agenda for Sustainable Development.  

The measures put forward in this Communication can help to step up the level of fair taxation 
within  the  EU  and  contribute  to  a  fairer  tax  environment  internationally.  The  Commission 
calls  upon  the  Council  to  give  high  political  priority  and  to  contribute  to  their 
implementation.  

15