Home Knowledge Cayman Islands Added to EU Blacklist

Cayman Islands Added to EU Blacklist


Following a meeting of the EU’s Economic and Financial Affairs Council on 18 February 2020, the EU list of non-cooperative jurisdictions was revised with four countries, including the Cayman Islands, being added to the EU List of non-cooperative jurisdictions also known as the ‘blacklist’.

The Blacklist

The first blacklist was adopted by the EU Council in 2017 and has the stated aim of helping EU member states deal more robustly with countries that encourage abusive tax practice through clamping down on tax fraud, tax avoidance and tax evasion and money laundering. 

Through including countries on the list, the EU hopes to encourage cooperation by the country with the EU in aligning its tax practices with the EU’s external tax strategy. Countries that do not comply with international tax standards will find themselves on the EU’s blacklist, or, if they cooperate and commit to reforms, the ‘greylist’, until such time as they have implemented all of their commitments. 

The EU has revised the list several times since inception and from 2020 has committed to reviewing and updating the countries on the grey and black lists twice a year, giving listed countries the opportunity to get off the list if they can bring their tax practices in line with standards expected by the EU.

Effects of Blacklisting 

As well as sending “a strong signal to the jurisdictions concerned, thus encouraging change” there are other potentially significant outcomes for countries that end up on the black list. The EU Council has stated that for blacklisted countries “effective and proportionate measures, in both the tax and non-tax areas could be applied by the EU member states”.

This includes restricted access to assistance from the European Fund for Sustainable Development, the European Fund for Strategic Investments and the general framework for securitisation. 

At the creation of the list, the EU member states agreed that they would each apply at least one of the following measures to countries on the blacklist:

  • reinforced monitoring of certain transactions;
  • increased audit risks for taxpayers benefiting from the regimes at stake; and
  • increased audit risks for taxpayers using structures or arrangements involving these jurisdictions.

At a subsequent meeting in November 2019, it was agreed that further defensive measures should be taken by each member state, by applying at least one of the following legislative tax measures against blacklisted countries from 1 January 2021;

  • non-deductibility of costs for payments made to persons in listed jurisdictions;
  • taxing income of controlled foreign companies (CFC) in listed jurisdictions;
  • imposition of withholding taxes; and
  • limiting participation exemptions on profit distributions from entities in listed jurisdictions

Netherlands and France have already introduced some measures against jurisdictions on the EU blacklist, including the Netherlands applying new CFC rules to entities in blacklisted jurisdictions and France imposing a 75% withholding tax on various payments to certain entities resident in blacklisted jurisdictions. 

If the Cayman Islands is removed from the EU blacklist any defensive measures introduced by individual EU member states will cease to apply.

Cayman Islands Background

The Cayman Islands were initially placed on the EU’s greylist due to concerns relating to “tax regimes that facilitate offshore structures which attract profits without real economic activity”. The Cayman Islands committed to addressing these concerns through reforms by the end of 2019, specifically to put in place appropriate economic substance requirements for collective investment vehicles.

The Cayman Islands issued a statement in response to their blacklisting, outlining that legislation in this area had passed as of 31 January 2020, and came into force on 4 February 2020. 

It is therefore unlikely the Cayman Islands will remain blacklisted for long, however given that the position might not be reviewed, and the listing removed, until later this year it could have a significant impact on EU mandatory reporting requirements, discussed below.


Directive 2018/822 (DAC 6) was introduced to provide for the mandatory automatic exchange of information between Member States in the field of taxation relating to ‘reportable cross-border arrangements’. Its implementation was on foot of the recommendation under OECD BEPS Action 12 based on the ‘Mandatory Disclosure Scheme’.

Where a cross-border arrangement exists, details of the arrangement must be reported to local tax authorities if the arrangement falls within certain hallmarks, as set out in the Directive. Deductible cross-border related party payments to blacklisted countries (Category C of Annex IV) are automatically reportable.

This means that as things stand, any cross-border arrangement involving the Cayman Islands may be reportable and a full return of specified information will have to be submitted to Irish Revenue, or the relevant tax authority in another member state, for as long as the Cayman Islands remains on the blacklist. 

It is also important to note that where the first steps in any reportable arrangement occurred between 25 June 2018 and 1 July 2020, a return will have to be made by 31 August 2020. If the Cayman Islands remain on the blacklist until this date, it could pose a significant reporting burden on intermediaries and taxpayers who have been involved in cross border arrangements involving the Cayman Islands in the previous two years, which may not have been necessary prior to the EU’s listing on 18 February 2020.



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