This note addresses the process for the EU blacklisting of third countries (such as Mexico) as non-cooperative tax jurisdictions. Additionally, it explains Mexico's positions in the light of the listing criteria adopted by the EU as well as potential sanctions for listed countries.

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Mexico – inclusion in the European Union (EU) list of non-cooperative
tax jurisdictions.
In November 2018, the Code of Conduct Group for Business Taxation (the Group) released a report1 to the
Council of the European Union configured as the Economic and Financial Affairs Council (ECOFIN)2
. Such
report presented certain conclusions which were endorsed and adopted by ECOFIN. Among others, it was
endorsed the extension of the geographical scope of the EU screening and listing exercise as from 2020
which was agreed by the Group, and emphasized its determination to update the EU list of non-cooperative
jurisdictions for tax purposes at the beginning of 2019.
On March 12th, 2019, the European Commission (EC) issued a press release3 and a memo4 in which it was
indicated that following the 2018 agreement of the EU Member States (MSs) to extend the scope of
screening and monitoring related to the EU list of non-cooperative tax jurisdictions (the List)56
, three G20
countries that were not previously covered are now added to the next screening phase which will take
place during 2019, and for purposes of scrutinizing if there are deficiencies in their tax systems. The before
referred G20 jurisdictions include Mexico (together with Russia and Argentina).
I. Background.
In general terms, the List represents a commo tool for MSs to tackle external risks of tax abuse and unfair
tax competition globally, and overall its main objectives are to improve tax good governance
(internationally recognised good governance criteria) as well as to ensure that EU international partners
(i.e. third countries) respect the same international standards as MSs do. The List was first adopted by the
Council of the EU on December 5th
, 2017, and it reflects the role of the EU as a world leader on tax good
governance7.
The current format of the List responds to a 2016 initiative on a single EU Blacklist where only
“problematic” third countries are potentially included. Nevertheless, recent criticisms to the List also claim
for the inclusion of certain EU jurisdictions (e.g. Ireland, Luxembourg, the Netherlands, Malta, etc.), and
not having a List only composed or integrated by third countries.
1
November 20th, 2018. Council of the EU. I/A Item Note. 14363/18. FISC480.ECOFIN 1058.
2 The council is responsible for the EU policy in three main areas, namely economic policy, taxation issues, and regulation of financial
services. It is composed of the economics and finance ministers of the (still) 28 EU Member States as well as budget ministers when
budgetary issues are discussed. Additionally, relevant EU commissioners also participate in meetings, and ECOFIN meetings usually take
place once a month. The ECOFIN is one of the oldest configurations of the Council of the EU.
3
EC – Press Release. Fair Taxation: EU updates list of non-cooperative tax jurisdictions. IP/19/1606. March 12th
, 2019.
4
EC MEMO/19/1629. Questions and answers on the EU list of non-cooperative tax jurisdictions. March 12th
, 2019.
5
Also known as the EU Tax Havens List, or Common EU List of Third Country Jurisdictions for Tax Purposes.
6
This List should not be confused with the new EU Dirty-Money Blacklist related to high-risk third countries under the fourth and fifth anti-
money laundering directives (i.e. list of third countries with weak anti-money laundering and terrorist financing regimes). See EC – Press
Release. European Commission adopts new list of third countries with weak anti-money laundering and terrorist financing regimes.
IP/19/781. February 13th
, 2019.
7
See European Parliament. Briefing. Listing of tax havens by the EU. PE 621.872-May 2018.

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The List is based on a three-step process, normally consisting of a pre-assessment, screening and
monitoring phase, and listing. There is also available a de-listing procedure; however, such procedure may
only be accessed through previous careful analysis and dialogue with the relevant third country involved.
II. Updated List.
As of March 12th, 2019, the List contains 15 blacklisted countries, and 34 jurisdictions within the so-called
grey list.
On the one hand, Annex I (Blacklist) to the List includes those countries with major transparency concerns,
and which either failed to deliver on their commitments (on time) to comply with required good
governance criteria, or did not commit to do so at all (i.e. no commitment to address EU’s concerns). On
the other hand, there are jurisdictions identified as cooperative but which made high-level commitments
to comply with certain EU screening criteria for transparency as well as for fair taxation under the listing
process, and within a set deadline, thus remaining under monitoring for a specific period of time (e.g.
December 31st, 2018, or beyond under specific circumstances). These jurisdictions subject to successful
delivery on their commitments are usually included in Annex II (Grey List).
As above mentioned, the EU blacklisting involves a three-step process in which certain EU institutions are
involved. For example, the European Commission (EC) actively participates in the screening and
monitoring of targeted countries, and for these purposes it closely liaises and collaborates with the
Organisation for Economic Cooperation and Development (OECD), taking into account OECD’s
assessments of countries’ transparency standards and tax regimes. The EC reports to MSs through the
Group, and the Group is normally in charge of preparing recommendations of updated lists for the ECOFIN
to endorse (i.e. based on assessments by the EC, the Group decides whether or not a jurisdiction would
be listed, and makes recommendations to ECOFIN).
III. International standards, EU listing criteria, and Mexico’s position.
It can be claimed that the List is in line with the international agenda for tax good governance, and both
the EU and the OECD international framework may be seen as complementary. In this context,
international standards are usually related to best practices, rules, regulations and other instruments
covering harmful tax regimes; a proper level of economic substance; information exchange; bringing tax
transparency standards in line with international rules; bringing countries into international fora such as
the OECD Global Forum for Transparency, the BEPS Inclusive Framework, etc.
As for the EU listing criteria8, they are aligned with international standards, and reflect good governance
standards that MSs comply with themselves. Such criteria are based on three pillars which are described
as follows together with Mexico’s position on each of them:
8
Criteria were agreed by MSs at a November 2016 ECOFIN meeting.

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(i) Tax transparency
This pillar relates to compliance with international standards on automatic exchange of information
(AEOI), and exchange of information on request (EOIR). Additionally, it is related to a review on whether
or not a jurisdiction has ratified the Multilateral Convention to Implement Tax Treaty Related Measures
to Prevent Base Erosion and Profit Shifting (MLI)9.
As it can be observed, this criterion would address the status of a country towards AEOI and EOIR, the
ratification (or not) of the MLI, or if a country has signed bilateral agreements with all MSs. It appears that
until June 2019, the EU would only require compliance with two out of three of the transparency criteria,
and afterwards countries will have to comply with all three transparency requirements in order to avoid
being listed.
Mexico’s position10
 The MLI was signed on June 7th, 2017, although there is no available information on neither the
deposit of instrument of ratification, acceptance or approval, nor on the entry into force.
 There are around 22 exchange of information agreements on tax matters (some of them still
under negotiation).
 Around 65 double taxation conventions (DTCs) in force and effect (most of them containing an
exchange of information clause), 14 DTCs under negotiation, and 1 DTC under re-negotiation.
 Mexico is a party to the Convention on Mutual Administrative Assistance in Tax Matters (2010-
2013).
 FATCA participant (IGA 2012/2013).
 Mexico is a party to the Multilateral Competent Authority Agreement (MCAA)/CRS (MCAA on
the automatic exchange of information on financial accounts) (2014).
 There are in place general guidelines on the mutual exchange of information with foreign fiscal
authorities (2017).
 Mexico is a party to the Multilateral Competent Authority Agreement on the Exchange of CbC
Reports (2016)11.
(ii) Fair tax competition
Fair taxation involves the assessment of the existence of harmful tax regimes contrary to the EU Code of
Conduct for Business Taxation principles, or the OECD’s Forum on Harmful Tax Practices. Additionally, it
would also involve the assessment on compliance with EU Fiscal State Aid principles (i.e. the application
of State Aid rules to measures relating to direct business taxation).
9 As of February 25th, 2019, it already covers 87 jurisdictions, and entered into force on July 1st, 2018.
10
See, among others, Aguilar Millan, Federico. Intercambio de información en materia tributaria. El Financiero. 05/06/2015.
11
See www.oecd.org/ctp/exchange-of-tax-information/CbC-MCAA-signatories.pdf. Last visited March 17th
, 2019.

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As noted, this pillar aims at avoiding the existence of a country’s specific harmful tax regime which may
involve (although not necessarily) no or zero-rate corporate taxation as well as discouraging the creation
of artificial offshore structures without real economic activity. Moreover, the pillar encourages the
introduction into a country’sdomestic law of specific economic substance requirements, and transparency
measures.
Among others, criteria for identifying potentially harmful measures/harmful tax regimes would include12:
a. An effective level of taxation which is significantly lower than the general level of taxation in
the country concerned;
b. Tax benefits reserved for non-residents;
c. Tax incentives for activities which are isolated from the domestic economy, and therefore
have no impact on the national tax base;
d. Granting of tax advantages even in the absence of any real economic activity;
e. The basis of profit determination for companies in a multinational group departs from
internationally accepted rules (e.g. those approved by the OECD);
f. Lack of transparency.
Mexico’s position
 Mexico has not enacted yet specific rules on tax substance requirements for resident legal
entities, or local SPVs.
 Mexico has not implemented yet an UBO (ultimate beneficial owner) register system as those
registers in MSs (e.g. those referred in the 4th
AML Directive requiring MSs to set up registers of
the ultimate beneficial owners (UBOs) of legal entities).
 Several current special tax regimes and provisions under domestic law would be required to be
“tested”, for example: tax incentives for the northern border region13; REITs; (intended) PEMEX
fiscal regime overhaul; tax incentives on debt instruments and private capital markets14;
hydrocarbons income tax regime; non-residents’ domestic sourced income; tax regime for the
primary sector activities (e.g. agrobusiness, forestry, fishing); maquiladora regime, etc.
(iii) Implementation of base erosion and profit shifting (BEPS) measures
The objective of this pillar is to review whether or not a country has committed to implement the OECD’s
BEPS minimum standards (e.g. starting with CbC reporting). Additionally, under this pillar it is intended to
confirm the country’s participation in the inclusive framework (i.e. if the specific country is a member of
the inclusive framework on BEPS).
12
See European Parliament. Understanding the rationale for compiling “tax haven” lists. Briefing. December, 2017. PE 614.633. Also,
https://ec.europa.eu/taxation_customs/business/company-tax/harmful-tax-competition_en. Last visited March 18th
, 2019.
13 For further reference see our note available at www.slideshare.net/ArturoTrevino1/mexico-tax-incentives-northern-border-region. Last
visited March 18th, 2019.
14
For further reference see our note available at www.slideshare.net/ArturoTrevino1/mexico-new-tax-incentives-debt-instruments-
private-capital-markets-2019. Last visited March 19th
, 2019.

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Mexico’s position
 Mexico is a member of the inclusive framework on BEPS15
.
 There have been introduced into domestic law rules on related-party reporting (e.g. annual
information returns on CbC, master and local files).
 Additional transfer pricing compliance has been enacted through information returns.
 Tax deductibility limitation on certain payments of interests, royalties or technical assistance
fees to non-resident entities (related parties).
 Amendments to requisites for the applicability of DTCs provisions (and benefits).
 Introduction of best practices on electronic invoicing, tax compliance and fiscal audits.
 Requirement of an information return on relevant transactions performed during a relevant FY,
and according to a specific tax format/template.
 Amending protocols to certain DTCs under BEPS framework (e.g. Spain tax treaty), and
conclusion of new DTCs (e.g. Argentina).
IV. Potential sanctions to blacklisted countries.
Sanctions could stem from and imposed at different levels, namely from an EU level as well as from a
national (EU member state) level. Nevertheless, it has to be noted that additional sanctions may be
imposed according to further EU tax policies to be established, and taking into account future international
tax developments (e.g. OECD’s BEPS 2.0). From an EU level perspective, among others, those sanctions
could involve under EU provisions:
(i) The EU List is now linked to EU funding; therefore, funds cannot be routed through entities
located in listed countries. The EU funding mechanism would involve sources such as the
European Fund for Sustainable Development, the European Fund for Strategic Investment,
an External Lending Mandate, etc.
(ii) There is also a direct link to the EU List in relevant legislative proposals (e.g. new EU
transparency requirements for intermediaries). This may imply that a tax scheme channeled
through an EU listed country will be automatically reportable to the relevant tax authorities.
Additionally, there are links to the public CbC reporting proposal (e.g. stricter reporting
requirements).
In relation to sanctions to apply at a national level (EU member state level, and against listed jurisdictions)
there would be implications concerning an increased monitoring and audits, WHT, special documentation
requirements, anti-abuse provisions, etc.
15
See www.oecd.org/ctp/beps/inclusive-framework-on-beps-composition.pdf. Last visited March 18th
, 2019. See also,
www.oecd.org/tax/flyer-inclusive-framework-on-beps.pdf. Last visited March 18th, 2019.

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V. Additional comments.
Whether or not Mexico may be included in the List (either in Annex I or in Annex II) will very much depend
on the screening process to be conducted by EU institutions throughout 2019. Although Mexico has
actively participated in international tax initiatives including the OECD’s BEPS framework, and signed or
concluded several international tax instruments in order to implement and enhance mutual fiscal
collaboration, assistance and exchanges as well as tax transparency (e.g. MLI, MCAA, DTCs, information
exchange agreements, etc.), one field of major concern for Mexican government representatives may be
the existence (even inadvertently) under current domestic tax law provisions of the so-called harmful tax
measures/harmful tax regimes.
As stated elsewhere, Mexico is a third country from the perspective of the EU fiscal regulatory framework.
The 2019 screening process to be conducted involving the List, and addressing Mexico’s tax system will
definitely require a thorough understanding of the rules, provisions and principles pertaining to domestic
tax law, international tax law, and EU tax law, as well as their interaction in the case at play.
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