The final steps of the statutory process for implementing the European Union Savings Directive will soon be taken by the Cayman Islands Government, the Leader of Government Business McKeeva Bush told the Legislative Assembly in an address Monday.
The implementation of the EUSD will require Cayman’s financial sector organisations to provide European Union countries with information on savings income earned here for taxation purposes.
Mr. Bush said that two steps are being taken at this time.
‘First, the Cabinet shall be instructing the Financial Secretary to sign and return the Bilateral Agreements that are part of the Directive,’ he said.
The second step is having the House enact legislation allowing for the reporting of savings income information before the end of the current session.
‘This timetable is important as the legislation must be in place some time before the date when the Directive goes live on 1 July, 2005,’ he said.
The implementation of the EUSD was resisted by the Cayman Islands Government until it finally bowed to pressures from the United Kingdom in February, 2004.
In the battle to oppose the EUSD, Cayman scored an initial victory in the European Court of First Instance, only to have the UK threaten direct legislation if the Government did not agree to the Directive’s implementation.
In a series of negotiations with the British Government, however, Cayman gained some mitigating concessions for its acquiescence, including recognition of the Cayman Islands Stock Exchange in the UK.
Mr. Bush said the UK also gave an undertaking to allow CSX to become a Designated Investment Exchange, which would allow it not to have to submit itself to UK regulation or UK Financial Services Authority supervision.
‘Obtaining DIE recognition would remove some barriers to conducting business in the Cayman Islands,’ Mr. Bush said. ‘It would increase the capacity of CSX for growth and increase the work undertaken by Cayman Islands law firms, accountancy firms, listing agents and fund administrators.’
Mr. Bush said the Directive’s impact on the Cayman Islands would be limited because of its scope.
‘The Directive only applies in relation to an interest payment made by an economic operator, for example a bank or mutual fund, to an EU resident individual,’ Mr. Bush said.
He noted that the Directive did not apply to interest payments to any corporate entity in the European Union
Mr. Bush also pointed out that the EUSD will only apply to a Cayman economic operator if it acts as its own paying agent and makes interest payments from Cayman Islands directly to an EU resident individual.
There are other hurdles that must be cleared before the Directive takes effect, Mr. Bush indicated
He said payments made by a mutual fund would normally not be subject to the Directive, unless a dividend is paid or redemption proceeds are paid.
Because the majority of financial commerce coming here is not from individuals, Mr. Bush thinks the Cayman Islands will feel only limited effects.
‘I believe that the EU has misunderstood the nature of business in the Cayman Islands,’ he said. ‘We are not a haven for tax-evading Europeans. The transactional flow to our Islands is institutional, not personal.’
Ultimately, Mr. Bush thinks the EUSD will improve Cayman’s international financial reputation.
‘I welcome further transparency,’ he said. ‘It will help integrate further the Cayman Islands into the global financial market place.’
See more Legislative Assembly coverage on pages 8 and 9 of our printed edition..