The Cayman Islands is to be put on an EU blacklist of tax havens, making it the first UK overseas territory to be named and shamed by Brussels for failing to crack down on tax abuse.
This decision was made under the reasoning that Cayman has not passed adequate legislation addressing concerns about companies without sufficient economic presence on-island, yet claim tax advantages.
The Cayman Islands and the British Virgin Islands were both up for review by the EU this month after being grey listed in 2019.
We believe that we have introduced the appropriate legislative changes to enhance our regulatory framework, in line with the EU’s requests"
EU27 ambassadors made the decision to place the Cayman Islands on a list of nine overseas tax territories that have been designated as not effectively co-operating with the EU. The move comes less than a month after the UK's exit from the EU. European finance ministers are set to confirm the move when they meet in Brussels next week.
An EU official said Cayman's substance law was found to be "deficient". The territory, a major offshore funds centre, had also been asked to adapt its legislation on investment funds to bring the rules closer to EU standards.
Cayman will join Oman, Fiji, and Vanuatu on the nine-strong blacklist, the FT reported, citing European diplomats. The Bahamas and Armenia will be removed.
The updated list will show the Cayman Islands, Belize, Fiji, Oman, Samoa, Trinidad and Tobago, Vanuatu and the three US territories of American Samoa, Guam, and the US Virgin Islands, on it.
The EU's blacklist is an attempt to clamp down on the estimated £506bn lost to aggressive tax avoidance every year but member states are not "screened" in the process of drawing up the blacklist. the UK had heavily lobbied to protect its overseas territories from such scrutiny in the past but Brexit things have changed.
"While reports suggest the recommendation to EU Ministers of Finance that has been made by EU Ambassadors, the EU Ministers of Finance will make the final decision at a meeting to be held on 18th February," the ministry stated. "As such, we have yet to receive confirmation of an EU decision. We believe that we have introduced the appropriate legislative changes to enhance our regulatory framework, in line with the EU's requests."
The ministry said that over the past two years, the CIG "has adopted a number of fundamental legislative changes to enhance tax transparency and cooperation with the EU, fully delivering on our commitment to strengthen our regulatory regime and addressing the concerns reflected in the EU Council conclusions of 12 March 2019".
The statement further noted that the CIG had "offered to make itself available for further dialogue or clarification with the Commission and the EU Ministers of Finance".