Bermuda’s Finance Minister Curtis Dickinson

European Union finance ministers are set to remove Bermuda, Barbados and the Dutch Caribbean island of Aruba from its tax blacklist on Friday, according to an unnamed EU official cited by Reuters and Bloomberg News.

In March, the EU added the three islands to its list of jurisdictions that are uncooperative in tax matters, because of alleged shortcomings in their tax regimes.

Bermuda had committed to address any issues in its tax system identified by the EU by the end of last year. In December 2018, corresponding draft legislation was first considered insufficient by EU assessors. Once this had been amended, Bermuda’s government said, “a slight typographical error” meant that its submission to the EU’s Code of Conduct Group, which evaluates compliance with EU requirements, had been incomplete.

Even though the issue was rectified immediately, European finance ministers did not take the last-minute changes into account, Finance Minister Curtis Dickinson said in March.

Last Friday, Dickinson told MPs that he, together with Premier David Burt, had met with EU Commissioner Pierre Moscovici and Lyudmila Petkova, chairwoman of the EU’s Code of Conduct Group, as well as officials from the German and French finance ministries, to explain in detail the reasons for the technical omission in Bermuda’s economic substance regulations.

Bermuda’s new economic substance law and regulations aim to ensure that Bermuda-based entities engaged in relevant activities have sufficient economic activity in terms of management, staff, office space and expenditures on island to justify the profits they accrue.

“Following our meetings and the assurances we received,” Dickinson said, “we have every reason to believe that the EU Finance Ministers, on May 17, will remove Bermuda from Annex I of the list of non-cooperative jurisdictions in tax matters, the so-called blacklist.”

Like Cayman, the Bahamas and the British Virgin Islands, Bermuda is expected to be placed on the grey list of jurisdictions whose tax regimes, according to the EU, facilitate offshore structures that generate profits without real economic activity.

The grey listed countries have made a commitment to address any remaining concerns the EU has about economic substance in the area of collective investment funds.

However, it remains unclear what these concerns are.

Current laws in all four jurisdictions are modelled on rules developed by the OECD, which does not consider investment funds an economic substance issue.

After the removal of Bermuda, Aruba and Barbados, the EU tax blacklist will only feature twelve jurisdictions, including the United Arab Emirates, Oman and the three US territories of American Samoa, Guam, and the US Virgin Islands.

Other jurisdictions on the list are Belize, Fiji, the Marshall Islands, Vanuatu, Dominica, Samoa, and Trinidad and Tobago.