ECONOMIC SUBSTANCE www.captiveinternational.com
Various captive insurance domiciles
currently on the EU’s ‘grey list’ have been
asked to address concerns relating to
economic substance lest they get put on the
blacklist. But what exactly does that mean?
Captive International has the details.
ith only one month to
go until the EU updates
its list of uncooperative
tax jurisdictions, aka
the blacklist, the clock is ticking for
countries placed on its watch list—the
so-called ‘grey list’—to meet certain
requirements concerning tax matters
to be deemed cooperative.
Jersey is the first jurisdiction to
introduce legislation designed to meet
requirements set out by the EU by filing
an economic substance bill to both avoid
the blacklist and get off the grey list.
Set to come into force on January
1—subject to the Jersey government’s
approval—minister for external relations
Ian Gorst lodged a draft Taxation
Companies Economic Substance Law
for debate by the States Assembly at its
sitting on December 4.
The bill aims to address concerns
relating to the possibility that profits
from relevant activities are registered
in Jersey without adequate economic
activity taking place on the island.
Law firm Ogier stated that the bill
tests whether companies are carrying
out “relevant activities” to demonstrate
that they are “directed and managed”
in Jersey, and that their “core income
generating activities” take place in Jersey.
“As well as meeting the commitment
made in 2017, the lodging of this
legislation demonstrates Jersey’s welldeserved
reputation as a jurisdiction
of substance that is committed to
the development of new international
standards in fair taxation and to the
maintenance of a good neighbour policy
with the EU,” says Gorst.
Jersey, along with Bermuda, the
Cayman Islands, Guernsey and the Isle
of Man, have all been put on the EU’s
grey list with specific regard to meeting
economic substance requirements,
meaning they have agreed to modify
their tax regimes to comply with the rules
set by the EU Code of Conduct Group,
lest they be deemed a non-cooperative
jurisdiction and placed on the blacklist.
There is a great deal of uncertainty
with regard to what the blacklist
would mean for jurisdictions that have
captive insurance companies domiciled
within them, but there are concerns
over whether the list could result in
reputational damage or even sanctions.
In December 2017, the Council of the EU
published the list with the aim cracking
down on tax avoidance, and addressing
deficiencies in the tax systems of non-
EU jurisdictions. In assessing whether
a jurisdiction is cooperative or not, the
EU has set requirements that must be
met, including tax transparency, fair
taxation, and the commitment to antibase
erosion and profit shifting (BEPS)
Over the past year, a number of
jurisdictions that used to be on the
blacklist have now been moved to
the grey list, as they have made
commitments to address the EU’s
On January 23, 2018, eight
jurisdictions were removed from
the blacklist: Barbados, Grenada,
the Republic of Korea, Macao SAR,
Mongolia, Panama, Tunisia and the
United Arab Emirates, following
commitments made at a high politics
level to remedy EU concerns.
On March 13, the Council of the EU
removed Bahrain, the Marshall Islands
and Saint Lucia from the list as they
made similar commitments, but it also
added three: the Bahamas, Saint Kitts
& Nevis, and the US Virgin Islands—all
captive insurance domiciles.
These three had been previously
been put on hold with regard to a
screening of their tax systems due to