By Mehreen Khan From Financial Times

UK overseas territory is first to be named and shamed for lax standards by Brussels after Brexit

The Cayman Islands will join Oman, Fiji, and Vanuatu on an EU blacklist of foreign tax havens, making it the first UK overseas territory to be named and shamed by Brussels for failing to crack down on tax abuse.

EU27 ambassadors on Wednesday took a decision to place the Cayman Islands on a nine-strong list of overseas tax territories that do not effectively co-operate with the EU, according to diplomats. 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. 

The statuses of the Cayman Islands and the British Virgin Islands — both overseas British territories — were up for review by the EU this month. Both were placed on a “grey list” that gives authorities time to introduce legislation to address tax deficiencies identified by Brussels.

Officials said the Cayman Islands did not pass legislation that adequately addressed concerns about companies who claim tax advantages but do not have a sufficient economic presence on the island.

An EU official said the law, which passed last year, was found to be “deficient”. The territory had also been asked to adapt its legislation on investment funds to bring the rules closer to EU standards.

As part of its opening gambit in trade talks, the EU has stressed the UK must abide by “level playing field” rules on EU tax standards and apply common rules to fight tax avoidance after Brexit. 

The commission did not comment on the decision and said the move was in the hands of member state governments. “EU finance ministers will evaluate the situation next week,” it said.

The EU first set up its list of tax havens in 2017 in an attempt to put pressure on countries to crack down on tax havens and unfair competition. Blacklisted countries face difficulties accessing EU funding programmes and European companies doing business in those jurisdictions have to take additional compliance measures. 

The designation has stoked diplomatic tensions between the US and EU after three overseas US territories were added. Brussels claims that the exercise has led to tax reform and greater transparency in more than 20 countries.

The blacklist, which is constantly revised, has shrunk from 15 countries in 2018 to eight currently. 

As overseas territories with separate legal systems to the UK, the Caymans and British Virgin Islands were part of a screening exercise while Britain was still a member of the EU. EU member states are not subject to the tax screening. 

Officials said that Turkey, which is currently on the “grey” list, would not be moved to the blacklist despite concerns about its information sharing with some EU member states. The Bahamas and Armenia will also be removed.

For more on this story go to: https://www.ft.com/content/1ed96e72-4dbb-11ea-95a0-43d18ec715f5