Financial Secretary Kenneth Jefferson tabled the Tax Information Authority Bill 2005 in the Legislative Assembly on Thursday, saying safeguards in it would prevent foreign governments from going on ‘fishing expeditions’ for financial information in the Cayman Islands.
The Bill, which ultimately passed second reading by a 9-4 margin, creates a law to provide for the co-operation between the Cayman Islands and other jurisdictions with regard to the exchange of information relating to tax matters.
An already concluded agreement with United States relating to federal income taxes in that country, formed Schedule 1 of the Bill, and agreements with other jurisdiction will form subsequent Schedules.
The Second Elected Member for George Town, Alden McLaughlin, articulating the Opposition’s response to the Bill, said there were fundamental concerns in Cayman’s financial industry about the lack of information coming from Government about its policies on tax information exchange.
‘Nothing is known about where Government is in negotiating other tax information exchange agreements with other jurisdictions,’ he said.
‘There’s no question about the need for these agreements,’ he continued. ‘After what has already transpired, there’s no going back. But getting terms that we agree to is essential to the financial industry.’
Mr. McLaughlin said he was concerned that adding new jurisdictions to the Law by way of Schedules would amount to ‘a rubber-stamping exercise, with no real debate and not real discussion about these arrangements.’
The Government’s consultation process with the private sector during the drafting of the Bill was something else Mr. McLaughlin questioned.
He tabled two letters from private sector entities, one dated 17 June, 2003 and signed by nine different financial industry organisations, and the other dated 5 May, 2004 from the Cayman Islands Law Society.
The letters outlined a multitude of concerns about tax information exchange agreements.
‘The industry has not received any response or been apprised of the Government’s thinking in these matters,’ Mr. McLaughlin said. ‘From what I’ve been told…. the Bill still falls short of what would be considered satisfactory by the industry.’
Mr. McLaughlin indicated the Bill needed revision.
‘It needs to establish a statutory framework that articulates the policy for tax information exchange for all to see,’ he said, noting that such a measure would serve as a public relations exercise.
‘It would give comfort to those doing business here that any agreement we would sign in the future would be within those parameters,’ he said.
In response to Mr. Jefferson’s comments about the law not permitting ‘fishing expeditions’, Mr. McLaughlin indicated his doubts.
‘In the view of many, the arrangement with the United States has gone too far,’ he said, noting one particular clause in that agreement.
‘It seems to say, ‘due process is fine – in your Banana Republic – as long as it does not interfere with us getting a response quickly.’
Mr. McLaughlin said he was surprised that a Bill as important as this had not had more consultation.
‘It is a matter of the greatest importance and interest,’ he said. ‘It goes to the heart of the financial services industry.’
In defending the Bill, the Second Official Member, Attorney General Sam Bulgin, said the Government did in fact have substantial consultation with the private sector.
‘We had a series of meetings with members of the financial industry…. where we went through, step-by-step, every single point articulated in the letter from the Law Society,’ he said.
Mr. Bulgin said the meetings took place on 15, 16 and 23 June, 2004, and noted that the meetings were long, extensive and contained some heated discussion.
‘We had some extremely helpful suggestions that came from them that were taken on board and incorporated into the Bill,’ he said.
‘There wasn’t agreement on every single issue…. but there was consultation.’
Mr. Bulgin confirmed that the Cayman Islands Government was in the process of negotiating ‘a couple’ of tax exchange information agreements.
‘The starting point of these negotiations is the Cayman Islands have to be removed from any international black list,’ he said, commenting on another one of Mr. McLaughlin’s concerns.
One of the countries with which the Cayman Islands is negotiating a comprehensive tax information agreement is the United Kingdom, Mr. Bulgin said, commenting that the negotiations are moving very slowly.
Mr. Bulgin indicated the Cayman Islands would protect the financial industry.
‘Government has consistently said it won’t do anything to jeopardise the financial industry,’ he said. ‘The bottom line is, Government will ensure the viability and profitability of this sector.’
Mr Bulgin said the Bill contained adequate safeguards to ensure that the powers created by the Law would not be abused.
Leader of the Opposition, Kurt Tibbetts indicated the safeguards might not be strong enough.
‘Regardless of the good faith of all of us here, none of us knows what good faith there is elsewhere,’ he said, and then referred to larger nations.
‘When the big boys rattle the stick, you’re supposed to shake and quick,’ he said. ‘As it says in the book Animal Farm, all men are created equal, but some men are created more equal than others.’
Also rising to defend the Bill was the First Official Member, Chief Secretary George McCarthy.
The former Financial Secretary said the whole ‘level playing field’ concept the Cayman Islands was striving for meant that what was good for one, was good for all.
Mr. McCarty disagreed with the idea that the Cayman Islands had no policy on tax information exchange agreements.
‘The Attorney General did not say there is no policy,’ he said. ‘Just because there isn’t something written down, doesn’t mean there is no policy.
‘In the end, actions speak louder than words,’ he continued. ‘This government is not going to undertake any act that would undermine the strength of the financial industry.’
West Bay MLA Rolston Anglin was the only elected member of the Government to speak in support of the Bill.
Mr. Anglin noted that Government had delayed bringing the legislation so it could consult with the private sector.
‘At the end of the day, the Government had to do something,’ he said. ‘Government has to act. I do not believe that Government is acting any way but responsibly.’
Mr. Anglin noted how some people overreacted to legislation concerning mutual funds in 2001.
‘Many said that legislation would be the death knell of the industry,’ he said. ‘But mutual fund registration is up, and Government’s decision has proven to be correct.’
Before voting on the Bill, Mr. Jefferson addressed some of the Opposition’s concerns.
Responding to the suggestion that Britain had a hand in the Bill, Mr. Jefferson said there had been ‘no direct or indirect attempt by the UK to influence the contents of the Bill.’
Mr. Jefferson said useful consultation with the private sector had indeed taken place.
‘There have been changes to the Bill to reflect the concerns of the private sector,’ he said, noting that not all of their suggestions had been adopted.
Mr. Jefferson said any future tax information exchange agreements entered into would be made only if they were in the best interest of the Cayman Islands.
‘There will not be any rubber stamping,’ he promised.