On February 18, 2020, EU finance ministers updated the EU Blacklist, adding four jurisdictions—the Cayman Islands, Palau, Panama and Seychelles. These jurisdictions join eight others—American Samoa, Fiji, Guam, Samoa, Oman, Trinidad and Tobago, Vanuatu and the US Virgin Islands—which were already on the list and remain non-compliant.

By contrast, over half of the countries added to the EU Blacklist in 2019 have been delisted, as these jurisdictions have addressed their commitments to comply with the EU’s criteria.

Under the EU listing process, jurisdictions are assessed against three main criteria—tax transparency (as determined under the OECD standards), the fairness of the tax system and implementation of the OECD’s recommendations against base erosion and profit shifting. Those that fall short on any of these criteria are asked for a commitment to address the deficiencies within a deadline.

The Cayman Islands had been on the EU’s “gray list” since the list’s inception in 2017 for having a tax regime that “facilitate[s] offshore structures which attract profits without real economic activity.” Following its gray listing, the Cayman Islands has engaged with the EU and has introduced a number of legislative measures, including economic substance rules that came into effect on January 1, 2019. Investment funds, entities through which investment funds (indirectly) invest or operate and Cayman exempt limited partnerships were initially out of the scope of these economic substance rules. The Cayman Islands has passed new legislation to further enhance its economic substance regime for investment funds. However, this new legislation only came into force on February 7, 2020, after the EU’s deadline and after the EU ministers met to determine the Cayman Island’s compliance status.

What are the consequences of this blacklisting? 

At the EU level, the main consequence of this blacklisting is that vehicles domiciled in the blacklisted countries will have their access restricted to the European Fund for Sustainable Development, the European Fund for Strategic Investments and the general EU framework for securitization.

There is also an interaction between the EU Blacklist and the EU’s mandatory disclosure regime (“DAC6”), which was required to be transposed into the domestic laws of EU member states by December 31, 2019. Under DAC6, a cross-border deductible payment made by an EU entity to an associated entity established in a blacklisted jurisdiction must be disclosed to the relevant tax authorities. These payments are not subject to the “main benefits test” and are therefore reportable regardless of whether the main benefit of the arrangement is to obtain a tax advantage. This DAC6 reporting obligation may also continue to apply to intra-group payments made by UK entities to blacklisted jurisdictions after Brexit; it has been widely expected that Brexit will not affect the UK’s domestic implementation of DAC6.

Other tax-related consequences of the blacklisting should be reviewed at the level of each EU member state. EU member states are encouraged by the EU, and the EU member states have already agreed to adopt, certain additional administrative measures for tax purposes with respect to transactions or structures involving blacklisted jurisdictions. In addition, EU member states are encouraged to adopt certain defensive tax measures, such as the denial of deductions of payments made to blacklisted jurisdictions, the levy of (increased) withholding taxes on payments made to blacklisted jurisdictions and the application of CFC rules to entities in blacklisted jurisdictions. The EU Blacklist has been a source of inspiration for most of the EU member states, but there are significant differences in the approaches that have been adopted. To illustrate, below are the Luxembourg, Dutch and French regimes.


On May 7, 2018, Luxembourg issued a tax circular indicating the measures the tax authorities will take when a Luxembourg company has transactions with jurisdictions on the EU Blacklist. Luxembourg law does not provide for a specific withholding tax provision for (deductible) payments made to entities set up or resident in blacklisted jurisdictions. According to the circular letter, Luxembourg companies must disclose any intragroup transactions made with entities established or resident in blacklisted jurisdictions in their annual tax returns. The tax authorities may review the details of those transactions, but we expect that they will mainly focus on whether those transactions are at arm’s length. Therefore, the mere listing of a country on the EU Blacklist should not lead to adverse tax consequences in Luxembourg, provided that the relevant transactions comply with the domestic provisions governing the arm’s length principle.


The Netherlands maintains its own blacklist, which is more extensive than the EU Blacklist and includes (i) jurisdictions that are on the EU Blacklist and (ii) other jurisdictions that the Dutch government has identified as having no profit tax regime or a profit tax regime with a statutory tax rate of less than 9 percent. The Dutch blacklist may trigger the application of the EU CFC rules, interest and royalty withholding taxes (as of 2021) and an exclusion from tax rulings. The Cayman Islands was already on the Dutch blacklist last year and is expected to stay on that list even if it is delisted from the EU Blacklist.


France also maintains its own blacklist. The French blacklist may trigger various tax measures, including withholding taxes or denial of tax deductions on payments. There are also specific transfer pricing documentation requirements. The Cayman Islands is not currently on the French list, updated just before the EU blacklisting of the Cayman Islands

What’s next?

Given that the government of the Cayman Islands has stressed its commitment to complying with the EU’s requirements, and taking into account the changes to its substance regime which are intended to address the EU’s concerns, the Cayman Islands should be delisted in the near future.

However, until such a delisting, it will be important to monitor the blacklisting’s implications for arrangements and structures involving the Cayman Islands.