European Union economics and finance ministers will decide in a video conference on Tuesday on a revised list of non-cooperative jurisdictions for tax purposes.
The Cayman Islands government is expecting Cayman to be removed from the EU Council’s tax blacklist after it introduced numerous legislative changes to Cayman’s funds regime this year.
Earlier this year, the EU included Cayman on the tax list because the islands did “not have appropriate measures in place relating to economic substance in the area of collective investment vehicles”.
Last year, the EU Code of Conduct Group on Business Taxation, which evaluates jurisdictions for inclusion in the tax list, issued technical guidance to the Cayman Islands. It stated that Cayman funds legislation would be assessed in terms of the processes for the authorisation and registration of funds; supervision and enforcement; valuation, accounting and auditing of funds; and depositary rules.
In response, Cayman’s Legislative Assembly amended the Mutual Funds Law and passed a new Private Funds Law at the end of January 2020 to implement new rules for the registration, administration and supervision of funds.
However, these changes came too late for the end-of-2019 deadline to be fully considered by the EU Council in early February.
As a result, most financial-services providers described Cayman’s inclusion on the list as a temporary “technical listing” that was caused by bad timing rather than substantial deficiencies.
Since then, Cayman lawmakers have further refined the Private Funds Law that requires certain closed-ended funds, or private funds, to register with the Cayman Islands Monetary Authority, which now has enforcement powers over the funds. The law further demands that private funds to file audited accounts, have appropriate internal asset-valuation procedures, and proper custodial and cash-monitoring processes.
On 1 July, government introduced changes to clarify the definition of private funds in a move that significantly increased the number and types of closed-ended investment vehicles that are subject to the law.
By August close to 11,200 private funds had registered with CIMA, up from only 1,500 a month earlier.
Since 2018, Cayman has made almost 20 legislative changes to meet EU criteria.
Cayman’s blacklisting did not have an immediate effect, in terms of sanctions or penalties, as Cayman funds continued to be marketed in Europe, and European investors could stay invested in those funds.
However, Cayman’s listing as uncooperative did have a negative impact on its reputation.
For instance, in the latest index of global financial centres, released twice a year by Z/Yen Group, Cayman is only ranked 78th out of 111 centres. It is the lowest ranking of any of the major offshore financial centres in the index based on a combination of quantitative data and survey responses by financial-services professionals.
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