In December a ‘blacklist’ of 17 non-cooperative jurisdictions in taxation matters was approved and published by the Council of the European Union and the Cayman Islands has not, as expected, been included on such list.
This list has taken over a year to be compiled and uses criteria which focus on:-
- tax transparency;
- fair taxation; and
- anti-BEPS (tax base erosion and profit shifting) measures being implemented.
Whilst the Cayman Islands is not included on the blacklist, it has been included on the ‘grey list’. This is a list of 47 countries that have committed to implementing certain measures by the end of 2018 in order to address any deficiencies in its regulatory regime. However, given that the Cayman Islands is an early adopter of FATCA, CRS and the beneficial ownership regime, it is unclear to many as to what these deficiencies are. The publication by the Council refers to the ‘existence of tax regimes that facilitate offshore structures which attract profits without real economic activity‘ as being a deficiency that the Cayman Islands has committed to addressing, but no further details are provided.
Some sceptics have suggested that, whilst disappointing, the inclusion of the Cayman Islands (as well as Jersey, Guernsey and the British Virgin Islands) on the grey list is not surprising and is politically motivated. The existing robust compliance regime of the Cayman Islands meant that inclusion on the blacklist was just not possible and so the ‘grey list’ was the next alternative. It is also surprising that Ireland, Luxembourg and the Netherlands were not included on either of the lists when it is the double-taxation treaties relating to those jurisdictions that are the most likely to be abused for tax avoidance purposes within the EU. This has led to claims of hypocrisy and protectionism by the European Union.
The Cayman Islands government will now be seeking to ensure that the remaining ‘deficiencies’ are clearly defined and, so far as reasonably practicable, resolved prior to the end of 2018 so that the Cayman Islands can be removed from the ‘grey list’. However, as the primary issue from the EU’s perspective appears to be that the Cayman Islands is a tax neutral jurisdiction (and therefore harmful to so-called ‘tax competition’ notwithstanding that this actually leads to higher tax revenues in the investors’ jurisdictions of tax residence and where the investments are made), it may well be that the Cayman Islands is unable to comply with the EU’s requirements and will remain on the ‘grey list’ until political sentiment changes and the Cayman Islands’ existing commitment to tax transparency is recognised.