EU puts Cayman Islands on tax haven blacklist

On 18 February 2020, EU Finance Ministers updated the EU list of non-cooperative tax jurisdictions to include Cayman Islands, Palau, Panama and Seychelles.

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. The newly blacklisted jurisdictions have been added to the list as the EU has determined that they failed to comply with the required standards within the deadline.

The Cayman Islands introduced new economic substance rules from 1 January 2019 and also passed new legislation on 31 January 2020 to further enhance its regime for private funds. However, the new legislation was not enacted until 7 February 2020 which was 3 days after the EU’s Code of Conduct Group met. 

The next update of the EU list is due in October 2020 and the EU will continue the dialogue with the blacklisted jurisdictions on the list in advance of this date. The Cayman Islands government has contacted EU officials to begin these discussions.

The list of non-cooperative jurisdictions now contains the following 12 jurisdictions;– Cayman Islands, Palau, Panama, Seychelles, American Samoa, Fiji, Samoa, Oman, Trinidad and Tobago, Vanuatu and US Virgin Islands.

The inclusion of a jurisdiction on the blacklist may impact a taxpayer or intermediaries’ requirement under EU directive 2018/822 (commonly referred to as DAC 6 or the “tax intermediaries directive”), to disclose to the tax authorities of the EU member states information on cross-border arrangements that meet certain criteria, referred to as “hallmarks.” One of the hallmarks (C1 (b) ii)) that is not subject to the main benefit test refers to deductible cross-border payments made between two or more associated enterprises where the recipient is resident for tax purposes in a jurisdiction listed as being non-cooperative.

Legislation to implement DAC6 was introduced in Ireland in Finance Act 2019. Taxpayers and intermediaries are required to report cross-border reportable arrangements from 1 July 2020. However, reports must also retrospectively cover arrangements where the first step is implemented between 25 June 2018 and 30 June 2020.

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