On 18 February 2020, the Council of the European Union (the “Council”) added, amongst others, the Cayman Islands to the EU list of non-cooperative jurisdictions for tax purposes. Although being on the EU blacklist is not necessarily cause for immediate alarm for investors in Cayman vehicles, it does mean that transactions and structures using Cayman entities may be subject to additional administrative requirements by EU Member States and there may be increased levels of mandatory tax reporting in respect of arrangements involving the Cayman Islands to EU tax authorities.  Further, depending on the domestic law of the EU Member State(s) concerned, blacklisting may result in increased levels of taxation for structures and arrangements involving Cayman entities.


In December 2017, the Council adopted the first EU list of non-cooperative jurisdictions for tax purposes.  This list has since been updated several times (including, most recently, on 18 February 2020) and is now updated biannually.

The EU’s stated aim in creating the list was to enable fair and effective corporate taxation, to address external challenges to the tax bases of EU Member States, and to improve global tax governance. To this end, based on a report prepared by the Council’s Code of Conduct Group (“CoCG”) with assistance from the EU Commission, the original list adopted by the Council comprised two components:

  • The first listed those non-EU jurisdictions which had refused to co-operate, or not made sufficient commitments in response to the EU’s concerns (known as the blacklist); and
  • The second listed those non-EU jurisdictions which had responded to the EU’s concerns with satisfactory commitments but which needed time to implement those commitments and were given a date by which they should implement those to avoid being put on the blacklist (known as the grey list).

The Cayman Islands, along with a number of other offshore financial centres, was included in the original grey list.  As part of CoCG’s assessment and screening work, the Cayman Islands was asked to introduce domestic measures to address economic substance of Cayman entities as well as changes to their regulatory framework applicable to collective investment vehicles. The Cayman Islands introduced legislation to address these points (reflecting amendments requested by CoCG) on 7 February 2020.  Accordingly, it is understood that the Cayman Islands government considered that it had met the commitments made to the EU.

Notwithstanding, on 18 February 2020, the Council added the Cayman Islands to the blacklist on the basis that the “Cayman Islands does not have appropriate measures in place relating to economic substance in the area of collective investment vehicles.”


From a practical investor perspective, unless Member States domestic law provides otherwise, it is understood that EU investors can continue to invest, and stay invested in, entities domiciled in blacklisted jurisdictions, and funds domiciled in blacklisted jurisdictions can be marketed to EU investors under the existing private placement regimes.  As such, there is not expected to be any immediate impact on investments in Cayman domiciled funds or the way such funds market themselves in the EU.

However, that does not mean that blacklisting has no implications. Regardless of the reasons why the Cayman Islands has been added to the blacklist and leaving aside any potential reputational implications, until such time as it is removed from the blacklist it will be important to consider and understand the effect of blacklisting on arrangements involving the Cayman Islands. The implications (if any) will vary from Member State to Member State depending on their domestic law or the EU law being considered. 

At the EU level, EU Member States are encouraged to adopt so-called “defensive measures” where a jurisdiction is blacklisted. In the tax space:

  • EU Member States previously agreed to apply at least one of the following administrative measures where arrangements concern a blacklisted jurisdiction:
    • reinforced transaction monitoring;
    • increased audit risks for taxpayers who benefit from blacklisted jurisdictions; and
    • increased audit risks for taxpayers who use structures or arrangements involving blacklisted jurisdictions.
  • In December 2019 the Council recommended that, from 2021, Member States should adopt at least one “defensive measure” where arrangements concern a blacklisted jurisdiction, such measures including, non-deductibility of costs in computing local tax, the application of local controlled foreign company (CFC) rules, increasing rates of withholding tax or limiting access to participation exemptions on profit distributions. It is understood that some EU Member States have adopted such measures into domestic law to take effect from 2021, in addition to those EU Member States that already have equivalent domestic measures in the case of zero-tax jurisdictions, regardless of whether the jurisdiction is blacklisted.

There are also non-tax implications such as a restrictions on access to the European Fund for Sustainable Development, the European Fund for Strategic Investments, and the general framework for securitisation.

Further, blacklisting may also increase the levels of reporting required under the “DAC 6” EU mandatory disclosure regime where a deductible payment is made by an EU enterprise to an associated Cayman enterprise.  In those circumstances, as a blacklisted jurisdiction, such payments would not be subject to the “main benefits” test and so would fall within the scope of the applicable hallmark necessitating disclosure of the arrangement to the relevant EU tax authority, regardless of whether a main benefit of the arrangement is to obtain a tax advantage. For instance, in a UK context, this may be relevant where there are interest or royalty payments by a UK company to an associated Cayman entity.   

Final remarks

It is not the first time that an important financial services centre has been blacklisted by the EU. Given that the Cayman Islands government has stressed its commitment to complying with the EU requirements, it may well be the case that once CoCG has had the opportunity to review the Cayman domestic law (and, if so required, changes are made to that law to meet any requirements of CoCG) that the Cayman Islands will be delisted. As noted, the blacklist is now reviewed bi-annually and so it is expected that a further review will be undertaken later in the year.  However, until such time as the Cayman Islands is removed from the blacklist, it will be important to consider and understand the implications of blacklisting on arrangements involving the Cayman Islands.