Significant parts of Caymans' financial services industry could move elsewhere because of the directive, which seeks to tax cross-border interest payments to EU residents from 2005.

The EU offensive cannot start without Cayman participation, according to the Financial Times. However UK treasury minister Dawn Primarolo was due to say today that the UK is willing to provide certain tax concessions to the Caymans, providing the UK dependent territory gives a commitment to implement the EU directive.

The Caymans' banking sector is the fifth largest in the world and is a leading centre for hedge funds.