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Cayman Islands: EU “blacklist” of non-cooperative jurisdictions

Cayman Islands: EU “blacklist” designation

The Cayman Islands in February 2020 was added to the EU’s list of non-cooperative jurisdictions for tax purposes.


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Reason for blacklist designation

Since the establishment of the EU’s non-cooperative tax jurisdiction list, the Cayman Islands has adopted more than 15 legislative changes in line with the EU’s criteria. In April 2019, the EU confirmed that the Cayman Islands had satisfied its economic substance requirements, with the exception of economic substance for investment funds/CIVs. This was a specific EU requirement because the Cayman Islands economic substance legislation was evaluated in June 2019 as “not harmful” (the highest positive rating possible) by the OECD’s Forum on Harmful Tax Practices.

As a result, the Cayman Islands government passed the Private Funds Law and the Mutual Funds (Amendment) Law—both of which addressed the EU’s concerns for CIVs. These laws were enacted and effective 7 February 2020. However, it appears that the blacklisting by the EU was due to the legislation not being in effect by 4 February 2020 (the date of the EU’s Code of Conduct Group meeting).

Implications of blacklist designation

  • The EU does not impose automatic sanctions on a country in a non-cooperative tax jurisdiction. Instead, each EU Member State may take action, and beginning 1 January 2021, they are required to apply at least one of four tax measures on any transactions with a non-cooperative jurisdiction—such as limits on tax deductions, controlled foreign company rules, and withholding taxes on payments made to a tax neutral jurisdiction.
  • EU investors can continue to invest or to remain invested in Cayman Islands funds and Cayman Islands funds can continue to be marketed to EU investors under the existing private placement regimes.
  • The EU Mandatory Disclosure Regime (DAC 6) includes a hallmark for related-party payments to an entity in a non-cooperative tax jurisdiction. Any related-party payments to a Cayman entity may now be reportable to the “home country” under DAC 6 within 30 days. DAC 6 reporting requirements are generally effective 1 July 2020 in most EU Member States.
  • EU funding is not available to or through entities established in a non-cooperative tax jurisdiction.
  • The list of non-cooperative tax jurisdictions will be updated twice yearly, and the next review of the blacklist is expected in October 2020.

Read a February 2020 report [PDF 224 KB] prepared by the KPMG member firm in the Cayman Islands

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