The European Union has added Cayman to its list of non-cooperative jurisdictions for tax purposes after it determined that Cayman failed to implement measures relating to economic substance in the area of collective investment vehicles within the agreed timetable.
In April 2019 the EU confirmed that Cayman had satisfied its economic substance requirements, with the exception of economic substance for funds, also known as collective investment vehicles (CIVs). This is a specific EU requirement, as Cayman’s economic substance legislation was evaluated in June 2019 as “not harmful” – the highest rating possible – by the OECD’s Forum on Harmful Tax Practices.
On 31 January 2020, Cayman passed The Private Funds Law and The Mutual Funds (Amendment) Law, both of which address the EU’s concerns for CIVs. The EU required the law to be in place by February 4, which was the date of the EU’s Code of Conduct Group meeting to advise the EU Finance Ministers. The law did not come into force until February 7.
“Crucially, this is a technical issue, and this does not reflect any concerns regarding the steps Cayman has taken to address the EU’s other concerns around fair taxation or transparency,” said Harneys, the law firm.
The Cayman Islands government has already contacted EU officials to begin the process of being removed from the list as soon as possible, which is understood to be October this year, said the Cayman Islands Premier Alden McLaughlin.
McLaughlin noted that over the past two years the Cayman government has cooperated with the EU to deliver on its commitments to enhance tax good governance. Since 2018 the island has adopted more than 15 legislative changes in line with the EU’s criteria, he said.
Harneys stressed the EU is not imposing any direct penalties on Cayman or Cayman structures. The decision is limited in scope to EU member states and not any other jurisdiction.
Harneys said: “The Cayman Islands has taken decisive action over the past years to adhere to the global harmonisation of laws in the areas of transparency and international tax standards. Its efforts have been recognised by leading global organisations, including the OECD, and the Cayman Islands Government has committed to work with the EU to be removed from the list at the next ECOFIN meeting later this year.”
Since the EU began its listing process in December 2017, almost 30 countries have been listed as non-cooperative. The majority have been subsequently removed, once required actions have been taken.
European Union, Cayman, OECD, Harneys, Alden McLaughlin, Collective investment vehicles