The Cayman Islands, the leading Caribbean tax haven, has for the first time given a conditional commitment to comply with the European Union's crackdown on tax evasion.

The Caymans, a UK dependent territory, is willing to comply if it secures financial concessions from Britain.

Officials from Britain and the Caymans held intensive discussions last month in an effort to end a bitter dispute over the EU crackdown.

Mr McKeeva Bush, the territory's de facto prime minister, said he was confident that, if the talks reached a satisfactory conclusion, his administration could introduce legislation to comply with the EU Savings Tax Directive.

The directive is likely to damage the Caymans' financial services industry and Mr Bush has been seeking offsetting measures from the British government, such as official recognition of the islands' stock exchange.

"Progress is being made and both parties are co-operating warmly," said Mr Bush.

"If discussions proceed as we hope, we are satisfied that the offsetting measures we will agree with [the UK] government will outweigh the costs of implementing the directive in the Cayman Islands."

The EU directive, which seeks to tax the savings income of EU citizens who put funds outside their home countries, cannot take effect in 2005 without the participation of UK territories such as the Caymans.

The Caymans has previously voiced strong opposition to the directive because it could lose some of its banking and hedge fund business to rival centres.

In December, Britain threatened to force the Caymans to comply with the directive if it did not do so voluntarily.

However, Britain would have to pass legislation to force the Caymans into line and Mr Bush had threatened a legal challenge. That would almost certainly drag on into 2005, which would hold up implementation of the EU directive.

Meanwhile, the Organisation for Economic Co-operation and Development today holds a meeting in London to discuss its tax evasion drive.