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EU removes Cayman Islands from tax haven blacklist

On 6 October 2020 the EU Council updated the list of non-cooperative tax jurisdictions, removing the Cayman Islands.

The Cayman Islands had introduced new economic substance rules in 2019 and also passed new legislation on 31 January 2020 to further enhance its regime for private funds. However, on 18 February 2020, EU Finance Ministers updated the EU list of non-cooperative tax jurisdictions to include the Cayman Islands as the new Cayman Islands legislation was not enacted until 7 February 2020 (3 days after the EU’s Code of Conduct Group met). This was the first revision of the list since that date.

The updated list also removed Oman and added Anguilla and Barbados. The list of non-cooperative jurisdictions as at 6 October 2020 contains the following 12 jurisdictions;– American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, the US Virgin Islands and Vanuatu.

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 overall goal of the EU list is to improve tax good governance globally, and to ensure that the EU's international partners respect the same standards as EU Member States do.

At a domestic level, Ireland, like other EU countries, are required to introduce defensive measures to deal with payments to blacklisted countries from 2021 onwards. Such measures could include increased monitoring of transactions and audits for taxpayers benefitting from regimes or structures via the blacklisted countries, non-deductibility of costs, controlled foreign companies’ rules, withholding tax measures, special documentation requirements and anti-abuse provisions.

At an EU level, EU legislation restricts certain EU development and investment funds from being channelled or routed through entities in the blacklisted countries. Further, 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 31 January 2021. In addition, arrangements where the first step is implemented between 25 June 2018 and 30 June 2020 must be reported by 28 February 2021.

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