Cayman Islands and the EU List of Non-Cooperative Tax Jurisdictions

The European Union (“EU”) has announced that following a meeting of the EU’s Economic and Financial Affairs Council (“ECOFIN”), the Cayman Islands has been moved to Annex 1 of the EU’s list of non-cooperative jurisdictions for tax purposes (“Annex 1”) effective 18 February 2020 due to not having appropriate measures in place relating to economic substance in the area of collective investment vehicles (“CIVs”).

The Cayman Islands Government (“CIG”) has announced that it has commenced discussions with EU officials to begin the process of having the Cayman Islands removed from Annex 1 as soon as possible, which in practice means October 2020. The CIG refers to the fact that the Cayman Islands passed legislation relating to CIVs (in the form of the Private Funds Law and Mutual Funds (Amendment) Law) on 31 January 2020, which came into force on 7 February 2020, to address the EU’s requirements in relation to CIVs.

The move to Annex 1 appears to be a technical issue arising out of the delay in enacting this legislation and it is therefore expected that the Cayman Islands will be removed from Annex 1 at the first available opportunity. The Cayman Islands’ economic substance legislation had already been evaluated in June 2019 by the OECD’s Forum on Harmful Tax Practices as “not harmful”, which is the highest rating possible.

The inclusion of the Cayman Islands on Annex 1 will have limited or no direct immediate consequences for investors or clients using Cayman Islands structures.

 

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