Four territories including Cayman Islands have been added to the EU ‘blacklist’

Four territories added to the EU ‘blacklist’

The Cayman Islands, Panama, Palau and Seychelles have been added to the EU list of non-cooperative tax jurisdictions.


Also on

On 18 February 2020, EU Finance Ministers updated the EU list of non-cooperative tax jurisdictions known as the ‘Blacklist’ by adding four new territories - Cayman Islands, Palau, Panama and Seychelles. The blacklist is part of the EU’s effort to clamp down on tax avoidance and harmful tax practices and is designed to encourage included jurisdictions to make changes to their tax regimes by adopting internationally recognised measures that should reduce potential harm to the EU tax base. Under the EU listing process, jurisdictions are assessed against three main criteria – tax transparency, fair taxation and real economic activity. Those that fall short on any of these criteria are asked for a commitment to address the deficiencies within a set deadline. These four jurisdictions were considered to have failed to comply with the required standards within the deadline.

The new additions join the eight jurisdictions – American Samoa, Fiji, Guam, Samoa, Oman, Trinidad and Tobago, Vanuatu and US Virgin Islands - that were already on the EU Blacklist and are still considered to be non-compliant.

The EU listing is a dynamic process and dialogue will continue with those jurisdictions on the list and the annex II (jurisdictions with pending commitments) in advance of the next update of the EU list in October 2020. There will also be ongoing monitoring of tax jurisdictions that have been cleared to ensure that they apply tax good governance in practice.

The listing of the Cayman Islands is an interesting development given the size of the territory’s financial services sector and investment flows. In April 2019 the EU confirmed that the Cayman Islands had satisfied the economic substance requirements with the exception of economic substance for investment funds/collective investment vehicles (CIVs). This is a specific EU requirement, as the Cayman Islands economic substance legislation was evaluated in June 2019 as “not harmful” by the OECD’s Forum on Harmful Tax Practices. The Cayman Islands Government had recently passed the Private Funds Law and the Mutual Funds (Amendment) Law, which they considered would address the EU’s concerns for CIVs. These laws came into force on 7 February 2020 which was after the meeting of the EU Code of Conduct Group on 4 February to advise EU Finance Ministers, prior to the ECOFIN decision regarding the listings.

It is therefore possible that the Cayman Islands will be taken off the EU Blacklist at the next opportunity in October 2020 and a statement by the Cayman Islands Government on 18 February 2020 confirms that they have “already contacted EU officials to begin the process of being removed from the EU list of non-cooperative jurisdictions as soon as possible”.

Consequences of EU Blacklisting

The EU does not impose any automatic sanctions when a country is added to the list of non-cooperative tax jurisdictions. However, being blacklisted has consequences for access to EU funding, the application of the EU Mandatory Disclosure regime (deductible cross border payments made to an associated enterprise located in an EU Blacklist jurisdiction are within the scope of Hallmark C) and there are also a number of “defensive measures” the EU has recommended that Member States apply in relation to transactions with EU Blacklist jurisdictions including a requirement to apply at least one of these measures effective 1 January 2021. The measures relate to (i) non-deductibility of costs, (ii) CFC rules, (iii) withholding tax measures, (iv) limitation of participation exemption on profit distributions and (v) administrative measures.

At present it is unclear if the UK will adopt any additional defensive measures targeted at EU Blacklist territories and the Cayman Islands could be removed from the EU Blacklist before such measures take effect.

For further information please contact:

© 2021 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organisation please visit

Connect with us


Want to do business with KPMG?


loading image Request for proposal

Save, Curate and Share

Save what resonates, curate a library of information, and share content with your network of contacts.

Sign up today